Rural Digital Opportunity Fund, Connect America Fund, 43543-43563 [2019-17783]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 84, Number 162 (Wednesday, August 21, 2019)]
[Proposed Rules]
[Pages 43543-43563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17783]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 19-126, 10-90; FCC 19-77]


Rural Digital Opportunity Fund, Connect America Fund

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) proposes to establish the Rural Digital Opportunity Fund 
and seeks comment on its overall approach in doing so.

DATES: Comments are due on or before September 20, 2019 and reply 
comments are due on or before October 21, 2019. If you anticipate that 
you will be submitting comments, but find it difficult to do so within 
the period of time allowed by this document, you should advise the 
contact listed in the following as soon as possible.

ADDRESSES: Pursuant to sections 1.415 and 1.419 of the Commission's 
rules, 47 CFR 1.415, 1.419, interested parties may file comments and 
reply comments on or before the dates indicated on the first page of 
this document. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS). See Electronic Filing of Documents in 
Rulemaking Proceedings, 63 FR 24121 (1998).
     Electronic Filers: Comments may be filed electronically 
using the internet by accessing the ECFS: https://www.fcc.gov/ecfs/.
     Paper Filers: Parties who choose to file by paper must 
file an original and one copy of each filing. If more than one docket 
or rulemaking number appears in the caption of this proceeding, filers 
must submit two additional copies for each additional docket or 
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial 
overnight courier, or by first-class or overnight U.S. Postal Service 
mail. All filings must be addressed to the Commission's Secretary, 
Office of the Secretary, Federal Communications Commission.
     All hand-delivered or messenger-delivered paper filings 
for the Commission's Secretary must be delivered to FCC Headquarters at 
445 12th Street SW, Room TW-A325, Washington, DC 20554. The filing 
hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held 
together with rubber bands or fasteners. Any envelopes and boxes must 
be disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9050 Junction Drive, 
Annapolis Junction, MD 20701.
     U.S. Postal Service first-class, Express, and Priority 
mail must be addressed to 445 12th Street SW, Washington, DC 20554.
    Comments and reply comments must include a short and concise 
summary of the substantive arguments raised in the pleading. Comments 
and reply comments must also comply with section 1.49 and all other 
applicable sections of the Commission's rules. The Commission directs 
all interested parties to include the name of the filing party and the 
date of the filing on each page of their comments and reply comments. 
All parties are encouraged to use a table of contents, regardless of 
the length of their submission. The Commission also strongly encourages 
parties to track the organization set forth in the Notice of Proposed 
Rulemaking in order to facilitate its internal review process.
    People With Disabilities. To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).

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 Notice 
of Proposed Rulemaking (NPRM) in WC Docket Nos. 19-126, 10-90; FCC 19-
77, adopted on August 1, 2019 and released on August 2, 2019. The full 
text of this document 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://www.fcc.gov/document/fcc-proposes-204-billion-rural-digital-opportunity-fund-0.

I. Introduction

    1. Broadband access is critical to economic opportunity, job 
creation, education and civic engagement. That is why closing the 
digital divide is the Commission's top priority. For communities 
throughout our nation to thrive and prosper, their residents must have 
the option to obtain high-speed internet access.
    2. Last year, the Commission took a major step forward in expanding 
broadband access to many parts of rural America. As a result of the 
Commission's successful Connect America Fund (CAF) Phase II auction, 
the Commission has begun providing $1.488 billion in universal service 
support over ten years to build high-speed broadband service to over 
700,000 households and small businesses in 45 states, with 99.75% of 
locations receiving at least 25/3 Mbps service and more than half 
receiving at least 100/20 Mbps service.
    3. But more work remains to be done. For example, more than 10 
million households and small businesses in price cap areas still lack 
access to critical broadband services that offer speeds of at least 25 
megabits per second (Mbps) downstream and 3 Mbps upstream in unserved 
census blocks, including more than 7 million in rural areas. In this 
document, the Commission proposes to build on the success of the CAF 
Phase II auction by establishing the Rural Digital Opportunity Fund, 
which will commit at least $20.4 billion over the next decade to 
support high-speed broadband networks in rural America. Because the CAF 
Phase II auction secured higher quality services for consumers at a 
lower cost to the Universal Service Fund (Fund), the Commission 
proposes to conduct a multi-round, reverse, descending clock auction 
that favors faster services with lower latency and encourages 
intermodal competition. And in light of the need to bring service both 
to consumers in wholly unserved areas as well as those living in 
partially served areas, the Commission proposes to assign funding in 
two phases: Phase I will target those areas that current data confirm 
are wholly unserved, and Phase II will target those areas that are 
partially served as well as any areas not won in the first phase. By 
relying on a two-phase process, as the Commission did with the Connect 
America Fund, the Commission can move expeditiously to commence an 
auction in 2020 while

[[Page 43544]]

also ensuring that other areas are not left behind by holding a second 
auction.
    4. The framework the Commission proposes in this document 
represents its single biggest step yet to close the rural digital 
divide and will connect millions more rural homes and small businesses 
to high-speed broadband networks.

II. Discussion

    5. Closing the digital divide and bringing robust, affordable high-
speed broadband to all Americans is the Commission's top priority. By 
improving access to modern communications services, the Commission can 
help provide individuals living in rural America with the same 
opportunities as their urban counterparts. The Rural Digital 
Opportunity Fund the Commission proposes is a critical next step in its 
high-cost program and ongoing effort to close the digital divide. By 
committing at least $20.4 billion over the next ten years, the 
Commission will bring broadband service at minimum speeds of 25/3 Mbps 
to millions of Americans living in the areas that need it most--
including those living on Tribal lands. And the Commission's two-phase 
approach will ensure that completely unserved areas are prioritized, so 
that support can begin to flow quickly while it works to improve the 
data needed to most efficiently target support over the longer term. At 
the same time, by awarding support through a competitive bidding 
mechanism and targeting investment to areas where there is currently no 
private sector business case to deploy broadband without assistance, 
the Commission will ensure that its limited universal service support 
is awarded in an efficient and cost-effective manner, without 
overbuilding to areas that already have service. Finally, the proposals 
the Commission adopts in this document includes measures to require 
accountability, so the Commission can ensure that its public 
investments are used wisely to deliver intended results.
    6. The Commission seeks comment on its overall approach in 
establishing a Rural Digital Opportunity Fund. The Commission proposes 
that its adoption of a Rural Digital Opportunity Fund framework will be 
guided by the following goals: (1) Ensuring that high-speed broadband 
is made available to all Americans quickly, and at an affordable price; 
(2) reducing waste and inefficiency in the high-cost program and 
promoting the use of incentive-based mechanisms to award support; (3) 
requiring accountability to ensure that public investments are used 
wisely to deliver intended results; and (4) minimizing the contribution 
burden. Does the framework the Commission proposes strike the right 
balance in helping to achieve those proposed objectives? Are there any 
other goals that should guide this process? How can the Commission 
measure progress against these proposed goals? In commenting on the 
detailed proposals that are in this document, parties are invited to 
discuss how the proposals (or any alternatives) can best be focused to 
achieve the Commission's proposed goals. Moreover, the Fund is a 
federal-state partnership. Are there ways the Rural Digital Opportunity 
Fund can facilitate that partnership?
    7. The approach the Commission takes in this document leverage its 
experience with the CAF program, and the CAF Phase II auction in 
particular. But it also acknowledges that market realities have changed 
since the CAF framework was first established in 2011. Consumers' 
demand for faster speeds has grown dramatically--and the market has 
largely been able to deliver. Speeds of 25/3 Mbps are widely available, 
and 25/3 Mbps is the Commission's current benchmark for evaluating 
whether a fixed service is advanced-telecommunications capable. Thus, 
the item proposes a 25/3 Mbps service availability threshold as the 
basis for establishing eligible areas. Demand for greater speeds will 
continue to rise. The framework the Commission proposes in this 
document therefore takes a flexible approach that prioritizes faster, 
gigabit speeds. The Commission's proposals also acknowledge that, 
despite its expectation that broadband would be deployed to many areas 
without high-cost support, some of these areas remain unserved. The 
NPRM proposes including these areas in the Rural Digital Opportunity 
Fund auction. In light of these dynamic marketplace changes, the 
Commission believes that a new support mechanism is better able to meet 
its objectives than continuing with the existing CAF framework. The 
Commission seeks comment on this conclusion.
    8. The Commission proposes adopting a term of support of 10 years 
for the Rural Digital Opportunity Fund. For the CAF Phase II auction, 
the Commission acknowledged that ``some entities may be unwilling to 
make necessary long-term investments to build robust future-proof 
networks in areas that are uneconomic to serve absent continued support 
beyond a five-year term'' and that ``providing support for a period of 
ten years may stimulate greater interest'' in the auction. The 
Commission believes that the 10-year term of support was partially 
responsible for the robust participation that occurred in the CAF Phase 
II auction and expect that the same principles regarding encouraging 
long-term investments and auction participation will also apply to the 
Rural Digital Opportunity Fund. Thus, the Commission proposes to adopt 
the same support term here. The Commission seeks comment on this 
proposal.
    9. The Commission proposes a budget of at least $20.4 billion for 
the Rural Digital Opportunity Fund. The budget is premised on the CAM 
estimated cost of deploying a high-speed broadband network to all 
locations in wholly unserved price cap census blocks that exceed the 
existing high-cost threshold of $52.50 per-location per-month, and with 
that cost capped at $198.60. These census blocks are considered wholly 
unserved because no provider is offering both voice service as well as 
25/3 Mbps terrestrial fixed broadband service. The Wireline Competition 
Bureau (Bureau) staff estimate that there are 3.9 million locations in 
these census blocks. The Commission seeks comment on this budget and 
this analysis.
    10. Of this budget, the Commission proposes to make available at 
least $16 billion for Phase I of the Rural Digital Opportunity Fund, 
and to make the remaining $4.4 billion from the total budget, as well 
as any unawarded funds from Phase I, available for Phase II. Three 
considerations guide the Commission. First, $16 billion reflects the 
sum of the total amount of CAF Phase II model-based support currently 
received by price cap carriers ($1.5 billion per year) and the support 
amount the Commission once envisioned for the Remote Areas Fund (at 
least $100 million per year). Second, the budget balances the 
Commission's goals of ensuring greater broadband deployment in rural 
America and efficient use of the Fund. The Commission proposes a budget 
that will lead to more robust inter-area competition in the auction, 
which will lead to service being provided at a lower cost in the areas 
awarded support. In the CAF Phase II auction, much of the bidding was 
driven by the fact that the total budget ($2 billion) was significantly 
less than the aggregate reserve prices of all areas in the auction ($6 
billion). The inter-area competition, as well as the intra-area 
competition, ultimately drove down the support required to provide 
service from a model-estimated $5 billion to only $1.488 billion. The 
Commission seeks to have a similarly efficient outcome for Phase I of 
the Rural Digital Opportunity Fund and hence proposes to have an 
aggregate reserve price that well exceeds

[[Page 43545]]

the auction budget by expanding the eligible census blocks beyond those 
used in calculation of the budget, modifying the reserve prices from 
those used in the budget calculation, and adjusting the budget from 
$20.4 billion to $16 billion. Third, the fact that any areas unawarded 
in the Phase I auction will roll over into the Phase II auction 
militates in favor of ensuring there is adequate inter-area competition 
in Phase I--the Commission's two-phase plan for the Rural Digital 
Opportunity Fund means it can ensure an efficient auction while 
furthering its commitment to universal service. The Commission seeks 
comment on this proposal, and on alternatives for how to appropriately 
size the Phase I budget.
    11. Finally, the Commission recognizes that achieving its universal 
service objectives is an ongoing process. As technologies and service 
levels evolve, fulfilling the Commission's objective of providing 
access in high-cost areas to services that are reasonably comparable to 
those available in urban areas means continually assessing the need to 
support services that compare to the ever-improving standard of 
advanced services in urban areas. Will the methodology the Commission 
proposes for the Rural Digital Opportunity Fund Phase I budget result 
in a budget that will cost-effectively achieve coverage to additional 
locations consistent with the public service obligations the Commission 
proposes for the Rural Digital Opportunity Fund? Should the Commission 
reassess the adequacy of the total budget after the Phase I auction?
    12. Given the success of the CAF Phase II auction, the Commission 
proposes to use a substantially similar reverse auction mechanism to 
distribute support to providers that commit to offer voice and 
broadband services to fixed locations. Specifically, the Commission 
proposes to use a multi-round, descending clock auction to identify the 
providers that will be eligible to receive support and to establish the 
amount of support that each bidder will be eligible to receive using 
procedures substantially similar to those used in the CAF Phase II 
auction. The Commission reiterates its preference for a multi-round 
auction because multiple rounds enable bidders ``to make adjustments in 
their bidding strategies to facilitate a viable aggregation of 
geographic areas in which to construct networks and enable competition 
to drive down support amounts.'' The Commission proposes that the Rural 
Digital Opportunity Fund descending clock auction will consist of 
sequential bidding rounds according to an announced schedule providing 
the start time and closing time of each bidding round. And the 
Commission proposes to rely on its existing general rules regarding 
competitive bidding for universal service support, with specific 
procedures to be developed through its standard Public Notice process.
    13. The Commission proposes that bids for different areas at 
specified performance tier and latency levels will be compared to each 
other based on area reserve prices, and performance tier and latency 
weights. Likewise, the Commission proposes to use weights to account 
for the different characteristics of service offerings that bidders 
propose to offer when ranking bids. The Commission proposes that bids 
for different service tiers will be considered simultaneously, so 
bidders that propose to meet one set of performance standards will be 
directly competing against bidders that propose to meet other 
performance standards. As the Commission did in the CAF Phase II 
auction, it proposes calculating the implied annual support amount at a 
bid percentage by adjusting an area-specific reserve price for the bid 
percentage and the weights for the performance tier and latency 
combination of the bid, with implied support not exceeding the reserve 
price.
    14. The Commission proposes to include all Phase I eligible areas 
nationwide in one auction, so that bidders compete for support across 
all areas at the same time. And the Commission seeks comment on whether 
census block groups containing one or more eligible census blocks is an 
appropriate minimum geographic unit for bidding for the Rural Digital 
Opportunity Fund. Given that the Rural Digital Opportunity Fund 
auctions will be much larger than the CAF Phase II auction, would a 
larger minimum geographic unit, like census tracts or counties, be more 
manageable? Are there other or more efficient ways to group census 
blocks for purposes of the auction?
    15. The Commission seeks comment on all these proposals. The 
Commission also seeks comment on whether there are any rule changes 
that it should consider for the Rural Digital Opportunity Fund auction 
that would lead to greater efficiency or better outcomes for the Fund 
and rural consumers.
    16. Public Interest Obligations. Given the success of the CAF Phase 
II auction in obtaining commitments from winning bidders for the 
deployment of robust service from a variety of service providers, the 
Commission proposes to adopt similar technology-neutral standards for 
services supported by the Rural Digital Opportunity Fund. Specifically, 
the Commission proposes to permit bids in the Baseline, Above-Baseline, 
and Gigabit performance tiers with the same speed and usage allowance 
requirements as the CAF Phase II auction and to place low latency or 
high latency bids meeting the same latency requirements as the CAF 
Phase II auction high and low latency bidders. Specifically, Baseline 
performance means 25/3 Mbps speeds with a 150 gigabytes (GB) monthly 
usage allowance or a monthly usage allowance that reflects the average 
usage of a majority of fixed broadband customers, whichever is higher, 
Above-Baseline performance means 100/20 Mbps speeds with 2 terabytes 
(TB) of monthly usage, and Gigabit performance means 1 Gbps/500 Mbps 
speeds with a 2 TB monthly usage allowance. In turn, low latency means 
95% or more of all peak period measurements of network round trip 
latency are at or below 100 milliseconds, and high-latency means 95% or 
more of all peak period measurements of network round trip latency are 
at or below 750 milliseconds and a demonstration of a score of four or 
higher using the Mean Opinion Score with respect to voice performance. 
Authorized support recipients would have the flexibility to use any 
fixed broadband technology to meet the required performance obligations 
and service milestones associated with their winning bids. Like all 
high-cost eligible telecommunications carriers (ETC), Rural Digital 
Opportunity Fund support recipients would be required to offer 
standalone voice service and offer voice and broadband services at 
rates that are reasonably comparable to rates offered in urban areas. 
The Commission seeks comment on these proposals. The Commission also 
seeks comment on whether it should tie the capacity requirements of all 
tiers to the average usage of a majority of fixed broadband customers, 
should it increase above the minimums the Commission establishes here.
    17. The Commission proposes not to include a Minimum performance 
tier, which required 10/1 Mbps broadband in the CAF Phase II auction. 
The Commission has since recognized that ``access to 25/3 Mbps 
broadband service is not a luxury for urban areas, but important to 
[all] Americans where they live.'' The Commission seeks comment on this 
proposal.
    18. As in the CAF Phase II auction, the Commission proposes using 
weights to reflect its preference for higher speeds, higher usage 
allowances, and low latency. There the Commission

[[Page 43546]]

adopted weights of 65 for the Minimum performance tier, 45 for the 
Baseline performance tier, 15 for the Above Baseline performance tier, 
and 0 for the Gigabit performance tier, as well as a weight of 25 for 
high latency bids and 0 for low latency bids. Accordingly, the spread 
between the best and least performing tiers was 90 points. With the 
Commission's proposed elimination of the Minimum performance tier, it 
can maintain that same 90-point spread between the best and least 
performing tiers in the Rural Digital Opportunity Fund auction by 
adjusting the weights for each tier as proposed in the following. To 
encourage the deployment of higher speed services, and in recognition 
that terrestrial fixed networks may serve as a backbone for 5G 
deployments, these proposed weights favor higher-than Baseline speeds 
and low-latency services. The Commission seeks comment on this 
proposal. Alternatively, should the Commission increase the 90-point 
spread between the best and least performing tiers to something 
higher--e.g., 95% or more? BILLING CODE 6712-01-P
[GRAPHIC] [TIFF OMITTED] TP21AU19.001

    BILLING CODE 6712-01-C19. To ensure that Rural Digital Opportunity 
Fund support recipients meet the relevant speed, usage allowance, and 
latency requirements, the Commission proposes subjecting them to the 
same framework for measuring speed and latency performance and the 
accompanying compliance framework as are applicable to all other 
recipients of high-cost support required to serve fixed locations. The 
adopted framework generally provides high-cost support recipients 
flexibility in choosing solutions to conduct the required testing.
    20. The Commission seeks comment on these proposals and on whether 
any alternative deployment obligations, performance requirements, 
weights, or testing methodologies should be adopted for recipients of 
Rural Digital Opportunity Fund support. Commenters proposing 
alternatives should explain how their proposal will balance the 
objectives of maximizing the Commission's limited budget and guarding 
against widening the digital divide by ensuring that rural Americans do 
not fall further behind those living in urban areas.
    21. Service Milestones. The Commission also proposes to adopt the 
same service milestones for the Rural Digital Opportunity Fund that it 
adopted for the CAF Phase II auction. Specifically, the Commission 
proposes that support recipients complete construction and commercially 
offer

[[Page 43547]]

voice and broadband service to 40% of the requisite number of locations 
in a state by the end of the third year of funding authorization, and 
an additional 20% in subsequent years, with 100% by the sixth year. As 
an alternative, should the Commission require support recipients to 
build out more quickly earlier in their support terms by offering voice 
and broadband to 50% of the requisite number of locations in a state by 
the end of the third year of funding authorization? A support recipient 
would be deemed to be commercially offering voice and/or broadband 
service to a location if it provides service to the location or could 
provide it within 10 business days upon request. All support recipients 
would also have to advertise the availability of their services through 
their service areas. Compliance would be determined on a state-level 
basis so that a support recipient would be in compliance with a service 
milestone if it offers service meeting the relevant performance 
requirements to the required number of locations across all of the 
awarded areas included in its winning bids in a state.
    22. The Commission also gave CAF Phase II auction support 
recipients some flexibility in their service obligations to address 
unforeseeable challenges to meeting those obligations. The Commission 
proposes to adopt the same flexibility with an accompanying reduction 
in support that it adopted for the CAF Phase II auction in recognition 
that facts on the ground may necessitate some flexibility regarding the 
final service milestone. Specifically, support recipients that have 
offered service to at least 95%, but less than 100%, of the number of 
funded locations at the end of the support term will be required to 
refund support based on the number of funded locations left unserved in 
that state. The Commission seeks comment on these proposals.
    23. The Commission recognizes that there may be some disparity 
between the number of locations specified by the Connect America Cost 
Model (CAM) and the ``facts on the ground.'' For the offer of model-
based support, the Commission directed the Bureau to address situations 
where a price cap carrier brings to the Bureau's attention any known 
disparity. The Commission notes that no price cap carrier receiving CAF 
Phase II model-based support has asked the Bureau to modify its number 
of required locations in a state. For the CAF Phase II auction, the 
Commission will permit support recipients to bring to its attention 
disparities between the number of locations estimated by the CAM and 
the number of locations actually on the ground in the eligible census 
blocks within their winning bid areas in a state. If a support 
recipient could sufficiently demonstrate that it is unable to identify 
enough actual locations on the ground across all of the census blocks 
for which it won support in a state, its deployment obligation and 
support will be reduced on a pro rata basis. The Commission proposes to 
follow this same course here and directs the Bureau to establish a 
process for such adjustments. As an alternative, should the Commission 
use a different source to address location disparities? Likewise, if 
the Digital Opportunity Data Collection is adopted, should different 
rules apply for Phase I and Phase II of the proposed auction?
    24. The Commission also seeks comment on whether there are 
additional measures it could adopt that would help ensure that Rural 
Digital Opportunity Fund support recipients will meet their third-year 
service milestones, and further seeks comment on what steps the 
Commission should take if it appears support recipients will not be 
able to meet their service milestones.
    25. Reporting Requirements. To ensure that support recipients are 
meeting their deployment obligations, the Commission proposes to adopt 
the same reporting requirements for the Rural Opportunity Digital Fund 
that the Commission adopted for the CAF Phase II auction. Specifically, 
the Commission proposes requiring Rural Digital Opportunity Fund 
support recipients to annually file the same location and technology 
data in the High Cost Universal Broadband (HUBB) portal and to make the 
same certifications when they have met their service milestones, and 
the Commission would encourage them to file such data on a rolling 
basis. The Commission also proposes requiring Rural Digital Opportunity 
Fund support recipients to file the same information in their annual 
FCC Form 481s that it requires of the CAF Phase II auction support 
recipients. Specifically, in addition to the certifications and 
information required of all high-cost ETCs in the FCC Form 481, Rural 
Digital Opportunity Fund support recipients would be required to 
certify each year after they have met their final service milestone 
that the network they operated in the prior year meets the Commission's 
performance requirements, and support recipients would be required to 
identify the number, names, and addresses of community anchor 
institutions to which they newly began providing access to broadband 
service in the preceding calendar year as well as identify the total 
amount of support that they used for capital expenditures in the 
previous calendar year. Moreover, support recipients would need to 
certify that they have available funds for all project costs that will 
exceed the amount of support they will receive in the next calendar 
year.
    26. Additionally, Rural Digital Opportunity Fund support recipients 
would be subject to the annual section 54.314 certifications, the same 
record retention and audit requirements, and the same support 
reductions for untimely filings as all other high-cost ETCs. In 
addition, support recipients that are designated by the Commission 
would need to self-certify.
    27. The Commission seeks comment on these proposals and whether it 
needs to make any adjustments to this reporting framework for Rural 
Digital Opportunity Fund support recipients. To the extent commenters 
propose that the Commission adopts different public interest 
obligations or service milestones or make other changes to relevant 
proposals, they should also address whether the Commission needs to 
make any adjustments to its reporting framework to account for the 
proposed changes.
    28. To minimize the administrative burden on the Commission, the 
Universal Service Administrative Company (USAC), and Rural Digital 
Opportunity Fund support recipients, the Commission also seeks comment 
on how it can align service milestones, service milestone 
certifications, and location reporting deadlines for all Rural Digital 
Opportunity Fund support recipients, even though the long-form 
applicants may be authorized to receive support on different dates. For 
example, to minimize administrative burdens on the Commission and USAC 
and to simplify reporting for support recipients, should the Commission 
align the service milestones and reporting deadlines for the Rural 
Digital Opportunity Fund with those for other high-cost programs? 
Specifically, regardless of when a Rural Digital Opportunity Fund 
recipient is authorized to receive support, should each service 
milestone occur on a date certain, such as June 30 or December 31? 
Should support recipients be required to certify that they have met the 
applicable service milestone and to submit a list of locations where 
they offer service within two months of such a deadline? Are there any 
adjustments the Commission should make to better align the support 
reductions applicable to late filers with the filing deadlines?
    29. Non-Compliance Measures. The Commission also proposes to apply 
the same non-compliance measures that are

[[Page 43548]]

applicable to all high-cost ETCs, the framework for support reductions 
that is applicable to high-cost ETCs that are required to meet defined 
service milestones, and the process the Commission adopted for drawing 
on letters of credit for the CAF Phase II auction. Specifically, the 
Commission proposes to rely on the following non-compliance tiers:

                        Non-Compliance Framework
------------------------------------------------------------------------
        Compliance gap                   Non-compliance measure
------------------------------------------------------------------------
Tier 1: 5% to less than 15%    Quarterly reporting.
 required number of locations.
Tier 2: 15% to less than 25%   Quarterly reporting + withhold 15% of
 required number of locations.  monthly support.
Tier 3: 25% to less than 50%   Quarterly reporting + withhold 25% of
 required number of locations.  monthly support.
Tier 4: 50% or more required   Quarterly reporting + withhold 50% of
 number of locations.           monthly support for six months; after
                                six months withhold 100% of monthly
                                support and recover percentage of
                                support equal to compliance gap plus 10%
                                of support disbursed to date.
------------------------------------------------------------------------

    30. A support recipient would have the opportunity to move tiers as 
it comes into compliance and will receive any support that has been 
withheld if it moves from one of the higher tiers to Tier 1 status 
during the build-out period. If a support recipient misses the final 
service milestone, it would have 12 months from the date of the final 
service milestone deadline to come into full compliance. If it does not 
report that it has come into full compliance, USAC would recover an 
amount of support that is equal to 1.89 times the average amount of 
support per location received in the state for that ETC over the 
support term for the relevant number of locations, plus 10% of the 
support recipient's total relevant high-cost support over the support 
term for that state. The same support reduction would apply if USAC 
later determines in the course of a compliance review that a support 
recipient does not have sufficient evidence to demonstrate that it is 
offering service to all of the locations required by the final 
milestone.
    31. As in the CAF Phase II auction, USAC would be authorized to 
draw on the letter of credit to recover all of the support that has 
been disbursed in the event that a support recipient does not meet the 
relevant service milestones, does not come into compliance during the 
cure period, and does not repay the Commission the support associated 
with the non-compliance gap within a certain amount of time. If a 
support recipient is in Tier 4 status during the build-out period or 
has missed the final service milestone, and USAC has initiated support 
recovery as described in this document, the support recipient would 
have six months to pay back the support that USAC seeks to recover. If 
the support recipient does not repay USAC by the deadline, the Bureau 
would issue a letter to that effect and USAC would draw on the letter 
of credit to recover all of the support that has been disbursed. If a 
support recipient has closed its letter of credit and it is later 
determined that the a support recipient does not have sufficient 
evidence to demonstrate that it is offering service to the total number 
of required locations, that support recipient would be subject to 
additional non-compliance measures if it does not repay the Commission 
after six months. And like other high-cost ETCs, support recipients 
would be subject to other sanctions for non-compliance with the terms 
and conditions of high-cost funding, including but not limited to the 
Commission's existing enforcement procedures and penalties, reductions 
in support amounts, potential revocation of ETC designations, and 
suspension or debarment.
    32. The Commission seeks comment on these proposals. To the extent 
that commenters recommend any changes to the proposed service 
milestones or other rules, they should also comment on whether their 
proposals would require any changes to these non-compliance measures. 
Commenters should also explain how their proposals encourage support 
recipients to comply with the Commission's rules and accomplish the 
Commission's oversight responsibilities, including protecting the 
integrity of the Fund.
    33. Additional Performance Targets. The Commission also seeks 
comment on whether it should adopt additional performance targets to 
provide better incentives for Rural Digital Opportunity Fund support 
recipients to sign up customers in the eligible areas. Specifically, 
the Commission seeks comment on how to ensure that support recipients 
have sufficient incentives for support recipients to pursue customers 
in the eligible areas. For example, spectrum-based bidders may have 
capacity constraints on their systems deterring them from continuing to 
pursue new subscribers should an increase in capacity (but not 
coverage, which is already mandated by the deployment milestones) 
require additional capital expenditures. Since Rural Digital 
Opportunity Fund support may require certain providers to offer much 
higher data caps than they do to non-Rural Digital Opportunity Fund 
subscribers and price the services similarly, such providers may have 
an incentive to limit Rural Digital Opportunity Fund subscribers to 
sell their capacity to more profitable non-Rural Digital Opportunity 
Fund subscribers. Spectrum-based providers that do not have a network 
sufficient to serve most locations in a geographic area would also have 
an incentive to limit subscription if expanding capacity would be less 
profitable than limiting subscription and collecting Rural Digital 
Opportunity Fund subsidies based purely on deployment. Even wireline 
bidders may lack the proper incentives to serve additional customers in 
some areas, given that it may not be profitable without a per-
subscriber payment to run wires from the street to the customer 
location and install customer premises equipment. The Commission seeks 
comment on whether these theoretical concerns are likely to bear out in 
reality and what to do to address them.
    34. The Commission seeks comment on a proposal to also adopt 
subscribership milestones for Rural Digital Opportunity Fund support 
recipients. For example, such a proposal could set milestones at 70% 
(the subscribership level assumed by the CAM) of the yearly deployment 
benchmarks. Hence the first subscribership benchmark could be 28% in 
year three, and increase 14% each year through year six, where it could 
remain at 70% through the end of

[[Page 43549]]

the term of support. Would a subscribership rate that is lower than 70% 
be more appropriate to account for the unique challenges of serving 
rural areas? If so, what subscribership rate would better reflect such 
challenges? Rural Digital Opportunity Fund support recipients would 
have the flexibility to offer a variety of broadband service offerings 
as long as they offer at least one standalone voice plan and one 
service plan that provides broadband at the relevant performance tier 
and latency requirements at rates that are reasonably comparable to 
rates offered in urban areas. Would it be appropriate to credit 
subscribers to any of the broadband services that are eligible for 
Rural Digital Opportunity Fund support in calculating adoption rates? 
To account for subscriber churn that may occur during the support term, 
should the adoption rate be represented as a percentage of the total 
potential subscriber months of the locations deployed? How should the 
Commission and USAC account for the fact that some support recipients 
may meet their service milestones more quickly than the six-year build-
out schedule, and the fact that some support recipients may take 
advantage of the flexibility to serve only 95% of the required number 
of locations? The Commission seeks comment on addressing this by using 
the minimum required deployed locations rather than actual locations 
deployed in the calculation of adoption rates.
    35. Under this proposal, the Commission would condition a portion 
of the recipient's support on meeting the subscribership milestones. 
Specifically, the Commission would withhold an amount of support equal 
to however many percentage points the recipient missed its 
subscribership milestone by. For example, if a recipient only had 27% 
subscribership in year three, only 1% (28%-27%) of support would be 
withheld. In contrast, if a recipient only had 17% subscribership in 
year six, then 53% (70%-27%) would be withheld. Notably, a recipient 
would receive its full annual support amount in monthly payments for 
the first two years of initial buildout. Such an approach could be 
structured by providing a monthly minimum guaranteed level of funding 
and an additional quarterly per-subscriber payment. The Commission 
seeks comment on this proposal.
    36. Commenters proposing that the Commission adopt such performance 
targets or similar measures should describe specifically how their 
proposals could be implemented within the Rural Digital Opportunity 
Fund framework to minimize the potential administrative burdens on the 
Commission, USAC, and service providers. For example, what type of 
reporting obligations should the Commission impose and what types of 
information should it collect to verify that a consumer is subscribing 
to a service as claimed? How could the Commission minimize the amount 
of personally identifiable information that is collected by support 
recipients to demonstrate that a consumer is subscribing to a service? 
Moreover, what measures could the Commission and USAC take to verify 
quickly but sufficiently a recipient's claimed subscription rate so as 
not to delay the disbursement of the support that is dependent on 
subscription rates? When should the support that is dependent on a 
subscription target be disbursed during the ten-year support term if an 
applicant's subscription rate and its build-out compliance will not be 
reported and verified until after the relevant support year has ended? 
What non-compliance measures should be taken if it is determined that 
an applicant has overreported its subscription rate? How should the 
requirement for a letter of credit be structured to provide adequate 
protection for the support that is guaranteed to be disbursed and the 
support that is dependent on meeting the subscription rate? What other 
safeguards should the Commission put in place?
    37. Alternatively, do other aspects of the Rural Digital 
Opportunity Fund framework that the Commission has proposed address 
these concerns? For example, would the requirement that a recipient be 
prepared to provide service meeting the relevant public interest 
obligations within 10 business days of request in order to count a 
location as served, as well as the requirement that an ETC advertise 
the availability of its services throughout its service area provide 
adequate incentives for Rural Digital Opportunity Fund support 
recipients to pursue customers? Would additional performance targets 
deter service provider participation in the auction? Would bidders that 
participate in the auction increase their bids to compensate for such 
uncertainty? Would the further complexity added to the auction by such 
an approach make it difficult for bidders, particularly small bidders 
with limited resources, to determine how much support to bid for? Are 
there particular challenges associated with marketing and encouraging 
broadband adoption in rural areas that the Commission should consider 
in evaluating a subscription benchmark? The Commission seeks comment on 
these issues and any other issues related to adopting additional 
performance targets or similar measures for Rural Digital Opportunity 
Fund support recipients and providing incentives for support recipients 
to meet their obligations and sign-up customers.
    38. The Commission proposes to target Rural Digital Opportunity 
Fund support to areas that lack access to both fixed voice and 25/3 
Mbps broadband services in two stages. For Phase I, the Commission 
proposes to target census blocks that are wholly unserved with 
broadband at speeds of 25/3 Mbps. For Phase II, the Commission proposes 
to target census blocks that it later determines are only partially 
served through the Digital Opportunity Data Collection, as well as 
census blocks unawarded in the Phase I auction. Because the Commission 
will have an additional opportunity to seek comment on how best to 
target Phase II support as it gathers more granular data on where 
broadband has been actually deployed, the Commission focuses here on 
the areas eligible for Phase I of the auction. The Commission seeks 
comment on this proposal.
    39. The Commission proposes to make several areas initially 
eligible for Phase I of the Rural Digital Opportunity Fund auction. 
First, the Commission proposes to include the census blocks for which 
price cap carriers currently receive CAF Phase II model-based support. 
Second, the Commission proposes to include any census blocks that were 
eligible for, but did not receive, winning bids in the CAF Phase II 
auction. Third, the Commission proposes to include any census blocks 
where a CAF Phase II auction winning bidder has defaulted. Fourth, the 
Commission proposes to include the census blocks excluded from the 
offers of model-based support and the CAF Phase II auction because they 
were served with voice and broadband of at least 10/1 Mbps. Fifth, the 
Commission proposes to include census blocks served by both price cap 
carriers and rate-of-return carriers to the extent that census block is 
in the price cap carrier's territory. The Commission proposes to use 
the most recent study area boundary data filed by the rate-of-return 
carriers to identify their service areas and determine the portion of 
each census block that is outside this service area. Sixth, the 
Commission proposes to include any census blocks that are currently 
unserved outside of price cap carriers where there is no certified 
high-cost ETC providing service, such as the Hawaiian Homelands, and 
any other

[[Page 43550]]

populated areas unserved by either a rate-of-return or price cap 
carrier. Seventh, the Commission proposes to include any census blocks 
identified by rate-of-return carriers as ones where they do not expect 
to extend broadband (as the Commission did with the CAF Phase II 
auction). The Commission seeks comment on these proposals.
    40. Are there any other areas that the Commission should include in 
the initial list of eligible areas? For example, the Commission decided 
to assign support by auction to areas in legacy rate-of-return areas 
that are almost entirely overlapped by an unsubsidized competitor in 
the December 2018 Rate-of-Return Reform Order, 84 FR 4711, February 19, 
2019. The Commission seeks comment on whether it should include these 
areas in the Rural Digital Opportunity Fund Phase I auction.
    41. For all census blocks on the initial list of eligible areas, 
the Commission proposes to exclude those census blocks where a 
terrestrial provider offers voice and 25/3 Mbps broadband service. The 
Commission proposes to use the most recent publicly available FCC Form 
477 data to identify these areas. The Commission also proposes to 
exclude census blocks where a winning bidder in the CAF Phase II 
auction is obligated to deploy broadband service. The Commission 
proposes to conduct a challenge process for the Rural Digital 
Opportunity Fund Phase I auction consistent with the process Commission 
conducted for the CAF Phase II auction, in which the Bureau released a 
preliminary list and map of initially eligible census blocks based on 
the most recent publicly available FCC Form 477 data. Because there is 
an inevitable lag between the reported deployment as of a certain date 
and when the data are publicly released, parties would be given an 
opportunity to identify areas that have subsequently become served. For 
example, the most recent publicly available FCC Form 477 was released 
on June 2, 2019, and reports deployment as of December 31, 2017. 
Similar to the CAF Phase II auction, it is likely that more recent FCC 
Form 477 data will be available prior to the Rural Digital Opportunity 
Fund auction. The final list of eligible areas would be based on the 
most recent publicly available FCC Form 477 data, but this would give 
the Bureau an opportunity to compare the preliminary list of eligible 
areas with the final list to identify any obvious reporting errors. The 
Commission seeks comment on this proposal.
    42. The Commission notes one caveat in its approach: The Commission 
proposes to treat price cap carriers differently from other providers 
in the areas where they have received model-based support because it 
already has more granular service availability data available from such 
carriers. Specifically, such carriers are required to report geocoded 
served locations to USAC through the HUBB portal. Although price cap 
carriers receiving model-based support were only required to offer 
broadband of at least 10/1 Mbps, some may have deployed higher speeds 
in their supported areas. The Commission proposes to include in the 
Rural Digital Opportunity Fund Phase I auction census blocks in which 
the price cap carrier receiving model-based support is the only 
terrestrial provider reporting the deployment of 25/3 Mbps broadband 
service in that block, but has not deployed such service to all 
locations in the block. Locations reported as served by 25/3 Mbps 
service in the HUBB portal would be considered served for purposes of 
the Rural Digital Opportunity Fund, and the reserve price and 
deployment obligations associated with the census block would be 
adjusted accordingly. The Commission proposes to establish a filing 
deadline for reporting 25/3 Mbps service in price cap areas that would 
be equivalent to what other providers report in their FCC Form 477 
filings. The Commission seeks comment on this proposal. Specifically, 
the Commission seeks comment on whether the use of HUBB portal data 
here, coupled with its broader FCC Form 477 reporting, would better 
determine the areas and locations that are actually unserved.
    43. As in the CAF Phase II auction, the Commission proposes to 
include both high-cost (i.e., those where the CAM estimates the cost 
per location to exceed $52.50 per month) and extremely-high cost 
locations (i.e., those where the CAM estimates the cost per location to 
equal or exceed $198.60 per month) in the Rural Digital Opportunity 
Fund auction. CAF Phase II support was targeted to ``census blocks 
where the cost of service is likely to be higher than can be supported 
through reasonable end-user rates alone'' through the use of a cost 
benchmark that reflected the expected amount of revenue that could 
reasonably be recovered from end users. Given that these areas are 
interspersed with lower-cost locations and with areas served by 
unsubsidized competitors, the Commission expects that potential bidders 
are best able to identify the areas where they could deploy broadband-
capable networks to the unserved areas in price cap territories. 
Moreover, the Commission notes that most of the areas that did not 
receive winning bids in the CAF Phase II auction are in areas the CAM 
identified as high-cost, and not extremely high-cost. Therefore, the 
Commission finds that it would be inefficient to conduct a separate 
Remote Areas Fund auction for so few locations.
    44. In turn, the Commission proposes to include at least some 
census blocks where the CAM suggests the costs of deployment are below 
the high-cost threshold but deployment has nonetheless not yet 
occurred. Broadband deployment data indicate that there are 6.3 million 
locations with costs below the $52.50 per month benchmark that still 
lack high-speed broadband (including 3.4 million locations that lack 
even 10/1 Mbps broadband), suggesting that potential end-user revenue 
alone has not incentivized deployment despite the model's predictions. 
The Commission proposes to include at least two subsets of such census 
blocks in rural areas in the Rural Digital Opportunity Fund.
    45. First, consistent with the approach the Commission established 
for Tribal areas for carriers that elected model-based rate-of-return 
support, it proposes to implement a Tribal Broadband Factor for the 
Rural Digital Opportunity Fund that accounts for the unique challenges 
of deploying broadband to rural Tribal communities. The Commission 
therefore proposes to include in the auction census blocks on Tribal 
lands meeting a $39.38 per month benchmark, which reflects a 25% 
decrease compared to the $52.50 funding benchmark for locations in non-
Tribal census blocks.
    46. Second, the Commission seeks comment on including other wholly 
unserved census blocks with estimated costs below the $52.50 benchmark. 
One way to do so would be to include all such census blocks that are 
not part of an urbanized area (with a population equal to or greater 
than 50,000) or an urban cluster. Another way would be to include all 
wholly-unserved census blocks with a particular cost benchmark below 
$52.50, such as $45 or $40. What approach would better serve the 
Commission's goal of bringing high-speed broadband service to those 
without such service in rural America? The Commission seeks comment on 
how best to ensure that rural census blocks that are wholly unserved by 
high-speed broadband are appropriately included in the Rural Digital 
Opportunity Fund.
    47. For Phase I of the Rural Digital Opportunity Fund auction, the 
Commission proposes to use the CAM to determine the reserve prices and 
number of locations for each area eligible for support in the auction. 
The

[[Page 43551]]

CAM uses a combination of commercial data and census data to determine 
the number of residential and small business locations within each 
census block. Specifically, the model incorporated an address-based 
data set of households and business building locations and census 
housing unit estimates to adjust the residential locations upward or 
downward to match the census data. The Commission used these data to 
determine the deployment obligations in a state for CAF Phase II model-
based support as well as the number of locations and reserve prices for 
the CAF Phase II auction. Consistent with this approach, the Commission 
proposes to rely on the CAM for the Rural Digital Opportunity Fund 
Phase I auction.
    48. Pursuant to the Commission's general competitive bidding rules 
and consistent with the CAF Phase II auction procedures, it has the 
discretion to establish reserve prices, i.e., maximum acceptable per-
unit bid amounts. For the Rural Digital Opportunity Fund, an area-
specific reserve price should reflect the maximum price the Commission 
is willing to provide in support to the area. The Commission seeks to 
set area-specific reserve prices that are high enough to promote 
participation and competition in the auction, but not so high as to 
violate its commitment to fiscal responsibility. As in the CAF Phase II 
auction, because the sum of the reserve prices for all eligible areas 
in the auction exceeds the budget, bidders will have to compete across 
areas for the limited budget. This competition serves the Commission's 
universal service goals and the public interest because the support 
amounts that result are more cost-effective than the model-based 
reserve prices.
    49. Consistent with the CAF Phase II auction, the Commission 
proposes using the CAM to establish the area-specific reserve prices 
based on the annual cost per location, less a benchmark to account for 
end-user revenue, for high-cost and extremely high-cost areas. 
Additionally, as the Commission proposes to include census blocks that 
are split between a price cap carrier and rate-of-return carrier in 
Phase I of the auction, it proposes to use the CAM to set the reserve 
price for the eligible price cap portion of the respective block. 
Similar to the CAF Phase II auction, the Commission proposes to set a 
per-location per-month cap for the reserve prices of census blocks with 
average costs that exceed the extremely high-cost threshold. 
Specifically, the Commission proposes to set a reserve price equal to 
the difference between the high-cost threshold of $52.50 ($39.98 in 
Tribal areas) and the CAM-estimated cost of deployment, up to a $200 
cap ($212.52 in Tribal areas). This proposal differs from the 
Commission's setting of reserve prices in the CAF Phase II auction in 
two respects. First, it accounts for the lower likely end-user revenues 
in Tribal areas (in the CAF Phase II auction, all areas had the same 
high-cost funding threshold). Second, it raises the cap from $146.10 to 
$200 (in the CAF Phase II auction, all areas were capped at the 
difference between the high-cost funding threshold and the extremely 
high-cost threshold of $198.60). Both of these changes are consistent 
with the Commission's recent decision to adjust model-based support for 
its second A-CAM offering to rate-of-return carriers. The Commission 
seeks comment on these proposals.
    50. To the extent the Commission includes rural census blocks with 
estimated costs below the $52.50 high-cost funding threshold, it seeks 
comment on a methodology for using the CAM to establish reserve prices. 
If the Commission decides to lower the high-cost threshold outside of 
Tribal lands, it would propose to set reserve prices based on the new, 
lower threshold, such as $40 or $45. This approach would allocate an 
amount of support to incentivize providers to include these unserved 
blocks in their bids, and ultimately deploy to these areas. Likewise, 
this approach would have the practical effect of making only census 
blocks that are above the new funding threshold eligible for the 
auction.
    51. In the alternative, if the Commission includes such census 
blocks based on whether they qualify as rural under a population 
metric, it would propose to use a uniform reserve price--e.g., $5 or 
$10 per-location per-month--for all such wholly unserved census blocks. 
If the Commission were to adopt such an approach, it seeks comment on 
adding the same flat per-location amount to the reserve price of all 
areas so that areas with reserve prices above, but close to, the 
support threshold of $52.50 would have a minimum reserve price of at 
least the flat amount. What would be an appropriate uniform per-
location reserve price for such areas? Should the Commission consider 
other means of establishing reserve prices and, if so, what values are 
appropriate?
    52. The Commission seeks comment on its proposals for setting 
reserve prices and on alternatives. Commenters that propose an 
alternative methodology for determining the reserve price for each 
eligible area should explain how their methodology recognizes the 
variation in cost to serve different locations and how their 
methodology provides the Commission with the ability to establish 
reserve prices that reflect a maximum allowable amount of support for 
specific eligible areas nationwide while preserving its commitment to 
fiscal responsibility.
    53. The Commission seeks comment on prioritizing support to certain 
eligible areas where broadband is significantly lacking. Specifically, 
the Commission seeks comment on prioritizing areas that entirely lack 
10/1 Mbps or better fixed service, either at the census block or census 
block group level. As a way to prioritize support, the Commission seeks 
comment on setting a reserve price for such areas that is higher than 
that based strictly on the model. If the Commission were to do adopt 
such approach, it seeks comment on how much the reserve price should be 
increased. Would a 10% increase give bidders a sufficiently greater 
incentive to bid for support for those areas? How should the Commission 
consider the tradeoff between awarding more support to prioritized 
areas and awarding support to fewer areas overall? Should the 
Commission consider using targeted bidding credits instead? Should the 
Commission also prioritize areas entirely lacking 4G LTE mobile 
wireless broadband? The Commission seeks comment on other approaches 
that it could consider and request that parties discuss how each 
mechanism could best address its goal of spurring broadband deployment 
to areas that entirely lack broadband service, as well as the 
complexity of each option for bidders and how simple each would be to 
implement and administer as leverage the bidding system the Commission 
initially developed for the CAF Phase II auction.
    54. The Commission expects to publish in conjunction with the final 
eligible areas list the reserve price for each eligible area. The 
Commission seeks comment on this proposal.
    55. The Commission seeks comment on including a Tribal bidding 
credit to incentivize parties in the Rural Digital Opportunity Fund 
auction to bid on and serve Tribal census blocks. The Commission has 
previously used Tribal bidding credits in the context of spectrum 
auctions, as well as in the Rural Broadband Experiments. Is a Tribal 
bidding credit an appropriate approach for incentivizing parties to 
serve Tribal lands? The Commission's goal for the Rural Digital 
Opportunity Fund is to increase deployment to rural, low-density Tribal 
areas that disproportionally lack access to

[[Page 43552]]

adequate broadband services. The Commission seeks comment on 
implementing a Tribal bidding credit specifically for these rural, less 
dense Tribal areas.
    56. In the event the Commission adopts a Tribal bidding credit for 
rural Tribal areas, it seeks comment on the appropriate credit to 
incentivize carriers to bid on and serve these areas. The Commission 
adopted a 25% bidding credit for the Rural Broadband Experiments and 
has implemented bidding credits ranging from 15% to 35% in the context 
of spectrum auctions. What would be an appropriate Tribal bidding 
credit for carriers committing to serve Tribal census blocks? How much 
of an increase would incentivize carriers to commit to serve rural 
Tribal areas? Would a 25% bidding credit for rural Tribal areas be 
appropriate or would a different amount be appropriate?
    57. The Commission seeks comment on other proposals to ensure 
Tribal areas receive bids for support in the Rural Digital Opportunity 
Fund, especially those rural Tribal areas that are in the most need of 
increased deployment. The Commission encourages parties to be mindful 
of the Commission's competing goals of promoting deployment to Tribal 
lands and ensuring that scarce universal service funds are used 
efficiently and appropriately. The Commission asks commenters to fully 
consider and discuss the mechanics and implementation of any proposed 
approach, including how it would operate within the Commission's 
overall universal service budget and how, or if, it should leverage any 
of the Commission's existing programs or infrastructure. With this 
information, the Commission will be able to properly consider how to 
allocate most efficiently the universal service budget to bring high-
speed broadband service to Indian country.
    58. In this section, the Commission describes and seeks comment on 
the information it proposes to collect from each Rural Digital 
Opportunity Fund auction applicant in its short-form and long-form 
applications, considering lessons it learned from the CAF Phase II 
auction. The Commission proposes to adopt generally the same two-step 
application process that it adopted for the CAF Phase II auction, which 
the Commission found an appropriate but not burdensome screen to ensure 
participation by qualified applicants while protecting the Fund, the 
integrity of the auction, and rural consumers.
    59. For the CAF Phase II auction, the Commission used a two-stage 
application process, consisting of a short-form and long-form process. 
The Commission required a pre-auction short-form application to 
establish eligibility to participate in the auction, relying primarily 
on disclosures as to identity and ownership, as well as on applicant 
certifications. The short-form application was reviewed as part of the 
Commission's initial screening process to determine the applicant's 
eligibility to bid for support. The short-form application helped 
promote an effective, efficient, and fair auction, facilitating 
Commission staff's evaluation of whether a potential bidder was 
qualified to participate in the CAF Phase II auction. Applicants whose 
short-form applications were deemed incomplete were given a limited 
opportunity to cure defects and to resubmit correct applications. Only 
minor modifications to an applicant's short-form application were 
permitted after the deadline.
    60. The Commission then performed a more extensive, post-auction 
review of the winning bidders' qualifications based on the required 
long-form application, which was an in-depth presentation of the 
applicants' eligibility and qualifications to receive high-cost 
universal service support. For the CAF Phase II auction, all winning 
bidders were required to provide detailed information showing that they 
are legally, technically and financially qualified to receive support.
    61. The Commission proposes that all applicants for the Rural 
Digital Opportunity Fund auction provide basic information in their 
short-form applications that will enable it to review and assess 
whether the applicant is eligible to participate in the auction, before 
an applicant commits time and resources to participating in the 
auction. The Commission also seeks more detailed comment in the 
following on whether to require less information at the short-form 
stage from existing providers that have been offering a voice and/or 
broadband service for a certain period of time as demonstrated by the 
applicants' FCC Form 477. The Commission also proposes to apply the 
same post-auction long-form application process adopted for the CAF 
Phase II auction. Accordingly, winning bidders applying for Rural 
Digital Opportunity Fund support would be required to provide the same 
showing in their long-form applications that they are legally, 
technically and financially qualified to receive support as required of 
applicants for CAF Phase II auction support.
    62. The Commission proposes that its existing universal service 
competitive bidding rules should apply so that applicants will be 
required to provide information that will establish their identity, 
including disclosing parties with ownership interests and any 
agreements the applicants may have relating to the support to be sought 
through the Rural Digital Opportunity Fund auction competitive bidding 
process.
    63. Ownership. The Commission proposes that its existing universal 
service competitive bidding rules should apply to the Rural Digital 
Opportunity Fund auction so that applicants will be required to provide 
information about ownership and agreements to establish their identity. 
The Commission's rules require each applicant to disclose in its short-
form application information concerning its real parties in interest 
and its ownership, and to identify all real parties in interest to any 
agreements relating to the participation of the applicant in the 
competitive bidding. The Commission proposes requiring an applicant to 
also provide in its short-form application a brief description of any 
such agreements, including any joint bidding arrangements. Commission 
staff used such information to identify and resolve impermissible state 
overlaps prior to the CAF Phase II auction. The Commission further 
proposes to require every applicant to certify in its short-form 
application that it has not entered into any explicit or implicit 
agreements, arrangements, or understandings of any kind related to the 
support to be sought through the Rural Digital Opportunity Fund 
auction, other than those disclosed in the short-form application. The 
Commission seeks comment on this process and whether its proposals 
efficiently and effectively promote straightforward bidding and 
safeguard the integrity of the auction.
    64. Technical and Financial Qualifications Certification. The 
Commission's CAF Phase II auction rules required an applicant for CAF 
Phase II auction support to certify that it is technically and 
financially capable of meeting the CAF Phase II auction public interest 
obligations in each area for which it seeks support. Likewise, the 
Commission proposes also requiring Rural Digital Opportunity Fund 
applicants to certify that they are technically and financially capable 
of meeting the applicable public interest obligations using the 
standards and certification criteria proposed in the following.
    65. Type of Technologies. Next, consistent with the CAF Phase II 
auction, the Commission proposes that all applicants indicate the 
performance tier and latency for the bids that they

[[Page 43553]]

plan to make and describe the technology or technologies that will be 
used to provide service for each bid. Moreover, the Commission proposes 
that applicants submit with their short-form applications any 
information or documentation to establish their eligibility for any 
bidding weights or preferences that it ultimately adopts. Consistent 
with the CAF Phase II auction, the Commission also proposes allowing an 
applicant to use different technologies within a state and use hybrid 
networks to meet its public interest obligations.
    66. Access to Spectrum. If a Rural Digital Opportunity Fund 
applicant intends to use spectrum to offer voice and broadband 
services, the Commission proposes, consistent with the CAF Phase II 
auction, that the applicant indicate the spectrum band(s) and total 
amount of uplink and downlink bandwidth (in megahertz) that it has 
access to for the last mile for each performance tier and latency 
combination it selected in each state. The Commission also proposes 
that an applicant must disclose whether it currently holds licenses for 
or leases spectrum. The Commission proposes the applicant must 
demonstrate it has the proper authorizations, if applicable, and access 
to operate on the spectrum it intends to use, and that the spectrum 
resources will be sufficient to cover peak network usage and meet the 
minimum performance requirements to serve all of the fixed locations in 
eligible areas, and the applicant must certify that it will retain its 
access to the spectrum for at least 10 years from the date of the 
funding authorization.
    67. Operational History and Submission of Financial Documents. 
Consistent with the CAF Phase II auction, the Commission proposes 
establishing two pathways for an applicant to demonstrate its 
operational experience and financial qualifications to participate in 
the Rural Digital Opportunity Fund auction. With the first pathway, an 
applicant would certify, if applicable, in its short-form application 
that it (or its parent company if it is a wholly-owned subsidiary) has 
provided voice, broadband, and/or electric distribution or transmission 
services for at least two years prior to the short-form application 
filing deadline. If the applicant certifies that it (or its parent 
company) has been providing voice and/or broadband service for at least 
two years, the Commission proposes requiring it to demonstrate that it 
has filed FCC Form 477s as required during the relevant time period. If 
an applicant certifies that it (or its parent company) has been 
providing only electric distribution or transmission services for at 
least two years, the Commission proposes requiring it to submit 
qualified operating or financial reports that it or its parent company 
(if it is a wholly-owned subsidiary) filed with the relevant financial 
institution to demonstrate its two years of operational history along 
with a certification that the submission is a true and accurate copy of 
the forms that were submitted to the relevant financial institution. 
The Commission expects that this information would provide it with 
sufficient assurance before the auction that an entity has demonstrated 
that it has the ability to build and maintain a network.
    68. As with the CAF Phase II auction, the Commission proposes that 
applicants that meet the foregoing requirements and that are audited in 
the ordinary course of business must also submit their (or their parent 
company's) financial statements from the prior fiscal year. These would 
include the balance sheets, income statements, and cash flow 
statements, that were audited by an independent certified public 
accountant, along with the audit opinion. If an applicant (or its 
parent company) is not audited in the ordinary course of business and 
the applicant does not submit its audited financial statements with the 
short-form application, the Commission proposes requiring the applicant 
to certify that it will submit audited financial statements during the 
long-form application process and requiring such applicants to submit 
unaudited financial statements from the prior fiscal year with their 
short-form application. The Commission also proposes that applicants 
that make such a certification and fail to submit the audited financial 
statements as required would be subject to the same base forfeiture of 
$50,000 that it adopted for the CAF Phase II auction. As with the CAF 
Phase II auction, the Commission expects that the additional cost of 
obtaining audited financial statements is outweighed by the importance 
of being able to assess the financial health of Rural Digital 
Opportunity Fund auction support recipients. The Commission notes the 
vast majority of CAF Phase II auction support recipients were able to 
obtain audited financial statements by the required deadlines.
    69. If an applicant does not have at least two years of operational 
experience, consistent with the CAF Phase II auction, the Commission 
proposes requiring such applicants to submit with their short-form 
application their (or their parent company's) financial statements that 
were audited by an independent certified public accountant from the 
three prior fiscal years, including the balance sheets, income 
statement, and cash flow statements, along with a qualified opinion 
letter. Such applicants would also be required to submit a letter of 
interest from a bank meeting the Commission's eligibility requirements 
stating that the bank would provide a letter of credit to the applicant 
if the applicant becomes a winning bidder and is awarded support of a 
certain dollar magnitude.
    70. As with the CAF Phase II auction, the Commission recognizes 
that if it were to adopt these two pathways, the Commission would 
potentially be precluding from participating in the auction interested 
bidders that have not been in operation long enough to meet these 
requirements or that are unable to meet these requirements for other 
reasons. However, these concerns are outweighed by the Commission's 
duties as the steward of universal service support. Commenters 
proposing alternative eligibility requirements should explain how their 
proposals would similarly further the Commission's responsibility to 
implement safeguards to ensure the public's funds are being provided to 
ETCs that have the requisite operational and financial qualifications 
and to protect consumers in rural and high-cost areas against being 
stranded without a service provider in the event a winning bidder or 
long-form applicant defaults.
    71. Due diligence certification. Consistent with the procedures 
adopted for the CAF Phase II auction, the Commission proposes requiring 
an applicant to certify that it has performed due diligence concerning 
its potential participation in the Rural Digital Opportunity Fund 
auction so the applicant understands its obligations in this regard. 
Specifically, the Commission proposes that each applicant make the 
following certification in its short-form application under penalty of 
perjury:

    The applicant acknowledges that it has sole responsibility for 
investigating and evaluating all technical and marketplace factors 
that may have a bearing on the level of Rural Digital Opportunity 
Fund support it submits as a bid, and that if the applicant wins 
support, it will be able to build and operate facilities in 
accordance with the Rural Digital Opportunity Fund obligations and 
the Commission's rules generally.

    72. This proposed certification will help ensure that each 
applicant acknowledges and accepts responsibility for its bids and any 
forfeitures imposed in the event of

[[Page 43554]]

default, and that the applicant will not attempt to place 
responsibility for the consequences of its bidding activity on either 
the Commission or third parties. The Commission seeks comment on this 
proposal.
    73. Changes to Short-Form Application. Building on lessons learned 
from the CAF Phase II auction, the Commission seeks comment on whether 
to require less technical and financial information at the short-form 
stage from applicants that are existing providers. The Commission 
proposes to define an existing provider as an entity that has been 
offering a voice and/or broadband service for a certain period of time 
as demonstrated by its FCC Form 477 data. If the Commission were to 
adopt this approach, how long should an applicant be required to 
demonstrate that it has been filing FCC Form 477 data and would thus be 
considered an existing provider? Should a provider be required to 
demonstrate that it has submitted FCC Form 477 data that demonstrates 
it has offered both voice and broadband services for a certain period 
of time, or is it sufficient if the provider has offered only broadband 
services? Likewise, the Commission seeks comment on requiring less 
information at the short-form stage from applicants that qualified to 
participate in the CAF Phase II auction. Similarly, are there any 
eligibility restrictions that should be placed on CAF Phase II auction 
winning bidders that defaulted on their winning bids? Should the 
Commission require such defaulters to submit additional information? 
Should the Commission prohibit them from participating at all?
    74. The Commission seeks to balance the burdens on applicants of 
completing a short-form application with the Commission's statutory 
obligation to protect the Fund, the integrity of the auction, and rural 
consumers. Commenters should consider what information the Commission 
can credibly rely on to evaluate an applicant's likeliness to perform 
without defaulting or to meet service milestones or service quality 
metrics. What presumptions can the Commission make from information 
that it already collects? To the extent commenters propose that the 
Commission adopt fewer obligations for certain applicants than it has 
proposed here, they should also address whether the Commission needs to 
make any adjustments to its application process in general to account 
for the proposed changes, and why the requirement is unnecessary for 
the Commission to determine whether an applicant is qualified to bid.
    75. After the Rural Digital Opportunity Fund auction concludes, the 
Commission proposes that each winning bidder submit a long-form 
application, which Commission staff will review to determine whether 
the winning bidder meets the eligibility requirements for receiving 
Rural Digital Opportunity Fund support and has the financial and 
technical qualifications to meet the obligations associated with such 
support. Consistent with the CAF Phase II auction, in its long-form 
application, each Rural Digital Opportunity Fund winning bidder would 
be required to submit information about its qualifications, funding, 
and the network it intends to use to meet its obligations. In addition, 
prior to being authorized to receive Rural Digital Opportunity Fund 
support, each winning bidder would demonstrate that it has been 
designated as an ETC in the area(s) for which it is a winning bidder 
and obtain a letter of credit from a bank meeting the Commission's 
eligibility requirements. Similar to the CAF Phase II auction, the 
Commission proposes to adopt the rules in Appendix A that apply to the 
long-form application. The Commission seeks comment on these proposals 
and on whether any changes should be made to the long-form application 
process for the Rural Digital Opportunity Fund.
    76. If a winning bidder is not authorized to receive Rural Digital 
Opportunity Fund support (e.g., the bidder fails to file or prosecute 
its long-form application or its long-form application is dismissed or 
denied), the Commission proposes the winning bidder would be in default 
and subject to the same forfeitures as CAF Phase II auction long-form 
applicants.
    77. The Commission proposes to adopt here the same letter of credit 
rules it adopted for the CAF Phase II auction. For the CAF Phase II 
auction, the Commission adopted a requirement that all long-form 
applicants obtain a letter of credit, explaining that letters of credit 
``are an effective means for accomplishing [the Commission's] role as 
stewards of the public's funds'' because they ``permit the Commission 
to immediately reclaim support'' from support recipients that are not 
meeting their CAF Phase II auction obligations. Before a CAF Phase II 
auction support recipient could receive its next year's support and 
each year's support thereafter, it had to modify, renew, or obtain a 
new letter of credit to ensure that it is valued at a minimum at the 
total amount of support that has already been disbursed plus the amount 
of support that is going to be provided in the next year, subject to 
certain reductions when the support recipient has substantially met its 
service milestones. If a CAF Phase II auction support recipient does 
not meet its service milestones or take advantage of the opportunities 
to cure or pay back the relevant support, the Commission will draw on 
the letter of credit. A CAF Phase II auction support recipient must 
only maintain an open letter of credit until the recipient has 
certified it has met the final service milestone and the certification 
has been verified.
    78. The Commission proposes that a Rural Digital Opportunity Fund 
long-form applicant obtain an irrevocable stand-by letter of credit 
that must be issued in substantially the same form as set forth in the 
Commission's Phase II Auction Order, 81 FR 44414, July 7, 2016, model 
letter of credit and that a long-form applicant submit a bankruptcy 
opinion letter from outside legal counsel. The Commission would also 
require that the letter of credit be issued by a bank that meets the 
same CAF Phase II auction bank eligibility requirements. Before they 
can receive their next year's support, Rural Digital Opportunity Fund 
support recipients would also be required to modify, renew, or obtain a 
new letter of credit to ensure that it is valued at a minimum of the 
total amount of money that has already been disbursed plus the amount 
of money that is going to be provided in the next year.
    79. The Commission proposes adopting the same phase-down schedule 
that was used in the CAF Phase II auction, allowing the value of the 
letter of credit to decrease over time as a support recipient satisfies 
its minimum coverage and service requirements. For the CAF Phase II 
auction, once the auction recipient has met its 60% service milestone, 
its letter of credit may be valued at 90% of the total support amount 
already disbursed plus the amount that will be disbursed in the coming 
year. Once the auction recipient has met its 80% service milestone, its 
letter of credit may be valued at 60% of the total support amount 
already disbursed plus the amount that will be disbursed in the coming 
year. The Commission also proposes that the letter of credit remain in 
place until USAC and the Commission verify that a Rural Digital 
Opportunity Fund recipient has met its minimum coverage and service 
requirements at the end of the six-year milestone. The Commission seeks 
comment on these proposals and on whether any adjustments should be 
made to the CAF Phase II auction letter of credit rules for the Rural 
Digital Opportunity Fund.

[[Page 43555]]

    80. The Commission also seeks comment on whether it should make any 
changes to streamline the Commission and USAC's review and 
administration of letters of credit. For example, the CAF Phase II 
auction rules currently permit a long-form applicant to submit multiple 
letters of credit that cover all the bids in a state. Should Rural 
Digital Opportunity Fund support recipients be required to submit one 
letter of credit that covers all the bids in a state to reduce the 
number of letters of credit that USAC and the Commission must review 
and track throughout the build-out period? The Commission seeks comment 
on these issues and on whether any other adjustments are appropriate, 
including adjustments to timing or the process for submitting letters 
of credit to USAC for review.
    81. The Commission seeks comment on adopting the same letter of 
credit waiver opportunity for Tribal Nations or Tribally-owned and -
controlled winning bidders. Specifically, should the Commission permit 
any Tribal Nation or Tribally-owned and -controlled long-form applicant 
that is unable to obtain a letter of credit to file a petition for 
waiver of the letter of credit requirement using the same standard the 
Commission adopted for the CAF Phase II auction? What alternative could 
the Commission use to secure the federal funding going to these support 
recipients in the event of non-performance or default? The Commission 
notes that a number of Tribally-owned and -controlled winning bidders 
were able to obtain letters of credit for the CAF Phase II auction.
    82. Finally, the CAF Phase II auction provides a basis for lessons 
learned that can inform the letter of credit requirements in the Rural 
Digital Opportunity Fund. The Commission observed in the CAF Phase II 
auction process that companies with existing lending relationships 
often use letters of credit in the normal course of operating their 
businesses and, generally, are able to maintain multiple forms of 
financing for varying purposes. On the other hand, the Commission also 
found that winning bidders complained of the high cost of obtaining and 
maintaining a letter of credit, such that it would ``consume too much 
of the limited capital available to . . . [and] leave [in]sufficient 
funds for . . . [CAF Phase II auction] construction.'' The Commission 
therefore seeks comment on whether it should decline to require a 
letter of credit for the Rural Digital Opportunity Fund. Are there 
viable, less costly alternatives that still minimize risk to public 
funds?
    83. The Commission proposes to adopt the same ETC designation 
procedures for the Rural Digital Opportunity Fund that the Commission 
adopted for the CAF Phase II auction. Only ETCs designated pursuant to 
section 214(e) of the Communications Act of 1934, as amended (the Act) 
are eligible to receive support from the high-cost program. For the CAF 
Phase II auction, the Commission did not require that service providers 
become ETCs to apply to participate and then bid in the auction. 
However, all long-form applicants were required to obtain an ETC 
designation that covers all of the areas where they won support prior 
to being authorized to receive support. Similarly, the Commission 
proposes that service providers that want to apply to bid in the Rural 
Digital Opportunity Fund auction would not be required to be ETCs, but 
that long-form applicants would be required, within 180 days of the 
release of the public notice announcing winning bidders, to obtain an 
ETC designation from the relevant state commission, or this Commission 
if the state commission lacks jurisdiction, that covers the areas where 
they won support.
    84. As in the CAF Phase II auction, the Commission expects that 
allowing service providers that are not ETCs (such as electric 
utilities) to apply to bid in the auction will encourage participation 
from service providers that may be hesitant to invest resources in 
applying for an ETC designation without knowing if they would be likely 
to win Rural Digital Opportunity Fund support. The Commission also 
proposes that the Bureau waive the deadline where long-form applicants 
demonstrate good faith efforts to obtain their ETC designations, but 
the proceeding is not complete by the deadline. Good faith would be 
presumed if the long-form applicant filed its ETC application with the 
relevant authority within 30 days of the release of the public notice 
announcing winning bidders.
    85. The Commission also proposes to forbear from the statutory 
requirement that the ETC service area of a Rural Digital Opportunity 
Fund participant conform to the service area of the rural telephone 
company serving the same area. As in the CAF Phase II auction, the 
Commission will be maximizing the use of Rural Digital Opportunity Fund 
support by making it available for only one provider per geographic 
area. Moreover, the Commission expects that the incumbent rural 
telephone company's service area will no longer be relevant because the 
incumbent service provider may be replaced by another Rural Digital 
Opportunity Fund recipient in portions of its service area.
    86. The Commission seeks comment on these proposals and on whether 
any changes should be made to the ETC designation procedures for the 
Rural Digital Opportunity Fund.
    87. In this section, the Commission seeks comment on two 
transitions that may occur as a result of the Rural Digital Opportunity 
Fund. First, the Commission examines how to transition incumbent price 
cap carriers from legacy high-cost support in areas where Rural Digital 
Opportunity Fund support is awarded. Second, the Commission examines 
how to transition price cap carriers from CAF Phase II model-based 
support in areas where Rural Digital Opportunity Fund support is 
awarded.
    88. To begin the process of transitioning legacy high-cost support 
to the CAF, the Commission implemented CAF Phase I by freezing support 
for price cap carriers under then-existing high-cost support mechanisms 
(legacy support) and decided that this frozen support would transition 
to CAF Phase II support upon completion of the CAF Phase II auction. To 
implement this transition, the Commission adopted a methodology for 
disaggregating the frozen support in states where price cap carriers 
declined model-based support and allocated a portion of each incumbent 
price cap carrier's existing frozen support to each CAF Phase II 
auction-eligible census block in the declined state based on the 
relative costs of providing service across all auction-eligible census 
blocks within the same state. Incumbent price cap carriers were given 
the option of declining this support on state-by-state basis.
    89. In areas where an incumbent price cap carrier receiving 
disaggregated legacy support is the long-form applicant that is 
authorized to receive CAF Phase II auction support, the incumbent price 
cap carrier will cease receiving disaggregated legacy support the first 
day of the month after the price cap carrier is authorized to receive 
CAF Phase II auction support in that area. Similarly, in areas won in 
the CAF Phase II auction by a carrier other than the incumbent price 
cap carrier, the incumbent price cap carrier will cease receiving 
disaggregated legacy support the first day of the month after the long-
form applicant is authorized to receive CAF Phase II auction support in 
that area. In areas where the incumbent price cap carrier receives 
disaggregated legacy support and there was no authorized long-form 
applicant, the incumbent price cap carrier will continue to receive 
such support until the Commission

[[Page 43556]]

takes further action. Finally, in all census blocks determined to be 
ineligible for the CAF Phase II auction, price cap carriers that 
declined CAF Phase II model-based support ceased receiving legacy 
support starting the first day of the month following the first 
authorization of CAF Phase II auction support nationwide.
    90. The Commission proposes to adopt a similar transition period 
for the Rural Digital Opportunity Fund for incumbent price cap carriers 
that are receiving disaggregated legacy support. The Commission 
proposes that an incumbent price cap carrier currently receiving 
disaggregated legacy support will no longer receive such support in any 
census block that is deemed ineligible for the Rural Digital 
Opportunity Fund. This approach is consistent with the Commission's 
decision to stop providing legacy support in areas deemed ineligible 
for the CAF Phase II auction because by excluding those areas from the 
auction, the Commission had already determined not to offer ongoing 
high-cost support for those areas. For the Rural Digital Opportunity 
Fund, the Commission proposes ceasing such support in the first day of 
the month after the final Rural Digital Opportunity Fund eligible areas 
list is released. Although the Commission waited until the first CAF 
Phase II auction recipient was authorized to stop providing legacy 
support in areas deemed ineligible for the CAF Phase II auction, the 
Commission had not yet adopted a methodology for transitioning from 
legacy support to CAF Phase II auction support when the Bureau released 
the final CAF Phase II auction eligible areas list and there is no 
reason to continue paying a carrier through the Rural Digital 
Opportunity Fund auction if the Commission has already determined an 
area is ineligible for support.
    91. In areas where an incumbent price cap carrier is receiving 
disaggregated legacy support and it becomes the authorized Rural 
Digital Opportunity Fund recipient, the Commission proposes that the 
incumbent price cap carrier will cease receiving disaggregated legacy 
support the first day of the month after the price cap carrier is 
authorized to receive Rural Digital Opportunity Fund support. 
Similarly, in areas where an incumbent price cap carrier is receiving 
disaggregated legacy support and another long-form applicant is 
authorized to receive Rural Digital Opportunity Fund support, the 
Commission proposes that the incumbent price cap carrier will cease 
receiving disaggregated legacy support the first day of the month after 
that long-form applicant is authorized to receive Rural Digital 
Opportunity Fund support. Finally, if no long-form applicant is 
authorized to receive Rural Digital Opportunity Fund support in an 
area, the Commission proposes that the incumbent price cap carrier 
receiving disaggregated support in that area would continue to receive 
such support until further Commission action.
    92. The Commission seeks comment on these proposals and on whether 
any adjustments should be made for the transition from disaggregated 
legacy support to Rural Digital Opportunity Fund support.
    93. In the December 2014 Connect America Order, 80 FR 4446, January 
17, 2015, the Commission adopted a transition period for price cap 
carriers that accepted CAF Phase II model-based support. If a price cap 
carrier was a winning bidder in the subsequent auction, it would 
commence receiving the auction support in 2021, after the model-based 
support term ended at the end of 2020. If the price cap carrier did not 
win in the auction or chose not to bid, it would have the option of 
electing one additional year of support, with CAF Phase II model-based 
support continuing in calendar 2021.
    94. Given that a Rural Digital Opportunity Fund auction is unlikely 
to conclude before model-based support for price cap carriers is 
expected to end, the Commission seeks comment on whether to revisit the 
transition period from CAF Phase II model-based support to Rural 
Digital Opportunity Fund support. As a threshold matter, the Commission 
seeks comment on which price cap carriers should be eligible for the 
optional seventh year of support. The optional support year was only to 
be made available to price cap carriers that did not bid or did not win 
support in the subsequent auction. But by the end of 2020, the 
Commission may not know which price cap carriers fall in these 
categories. Should all price cap carriers have the option to elect an 
additional year of support or should the option only be available to a 
subset of price cap carriers? If the option should only be available to 
a subset of price cap carriers, what criteria should the Commission use 
to determine which price cap carriers should have the option of 
electing one more year of support?
    95. The Commission emphasized the ``limited scope and duration'' of 
the CAF Phase II offer of model-based support. Price cap carriers had 
no expectation of receiving ongoing support beyond the additional 
optional year in these areas once the CAF Phase II support term had 
ended because the Commission expected that it would have conducted the 
subsequent auction before the support term had ended. Price cap 
carriers were provided the option of receiving six years of support, 
with an optional seventh year, in exchange for fulfilling specific 
service obligations which each price cap carrier had the opportunity to 
evaluate and accept or decline. Price cap carriers were also on notice 
that other service providers could win support to serve these areas in 
the subsequent auction so that ongoing support would not be made 
available once the optional year had ended. Because price cap carriers 
accepted CAF Phase II model-based support without an expectation of 
sustained ongoing support, the Commission does not believe it is 
necessary to provide any transitional support to price cap carriers 
beyond the optional seventh year of support. The Commission seeks 
comment on this view.
    96. Given the potential time period between the end of the CAF 
Phase II model-based support term and the authorization of Rural 
Digital Opportunity Fund support recipients, how should the Commission 
adjust the offer of an optional seventh year of support? Should it be 
available to all price cap carriers until the completion of the Rural 
Digital Opportunity Fund Phase I auction? Should it be available only 
until a specific time (e.g., June 30, 2021) with the remaining six 
months available only to price cap carriers that are not support 
recipients in the Phase I auction? Is a full year of support in 2021 
appropriate or should the Commission reduce the support to some lesser 
amount? Are there any additional obligations that are in the public 
interest that price cap carriers should also be subject to as a 
condition of receiving the extra year of 2021 support?
    97. The Commission also seeks comment on whether there are any 
other issues that it should address in the context of this proceeding 
that will facilitate the transition from CAF Phase II model-based 
support to Rural Digital Opportunity Fund support and will ensure that 
consumers retain access to voice and broadband services that are 
reasonably comparable to those offered in urban areas.

III. Procedural Matters

A. Paperwork Reduction Act Analysis

    98. This document contains proposed new information collection 
requirements. The Commission as part of its continuing effort to reduce 
paperwork burdens, invites the general

[[Page 43557]]

public and OMB to comment on the information collection requirements 
contained in this document, as required by the Paperwork Reduction Act 
of 1995, Public Law 104-13. In addition, pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4), the Commission seeks specific comment on how it might 
further reduce the information collection burden for small business 
concerns with fewer than 25 employees.
    99. Initial Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act of 1980, as amended (RFA), the Commission 
has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the 
possible significant economic impact on a substantial number of small 
entities from the policies and rules proposed in the NPRM. The 
Commission requests written public comment on this IRFA. Comments must 
be identified as responses to the IRFA and must be filed by the 
deadlines for comments for the NPRM. The Commission will send a copy of 
the NPRM, including this IRFA, to the Chief Counsel for Advocacy of the 
Small Business Administration (SBA). In addition, the NPRM and IRFA (or 
summaries thereof) will be published in the Federal Register.
    100. Broadband access is critical to economic opportunity, job 
creation, education and civic engagement. That is why closing the 
digital divide is the Commission's top priority. For communities 
throughout our nation to thrive and prosper, their residents must have 
the option to obtain high-speed internet access.
    101. Last year, the Commission took a major step forward in 
expanding broadband access to many parts of rural America. As a result 
of the Commission's successful CAF Phase II auction, the Commission has 
begun providing $1.488 billion in universal service support over ten 
years to build high-speed broadband service to over 700,000 households 
and small businesses in 45 states, with 99.75% of locations receiving 
at least 25/3 Mbps service and more than half receiving at least 100/20 
Mbps service.
    102. But more work remains to be done. For example, more than 10 
million households and small businesses in price cap areas still lack 
access to critical broadband services that offer speeds of at least 25 
megabits per second (Mbps) downstream and 3 Mbps upstream in unserved 
census blocks, including more than 7 million in rural areas. In this 
document, the Commission proposes to build on the success of the CAF 
Phase II auction by establishing the Rural Digital Opportunity Fund, 
which will commit at least $20.4 billion over the next decade to 
support high-speed broadband networks in rural America. Because the CAF 
Phase II auction secured higher quality services for consumers at a 
lower cost to the Fund, the Commission proposes to conduct a multi-
round, reverse, descending clock auction that favors faster services 
with lower latency and encourages intermodal competition. And in light 
of the need to bring service both to consumers in wholly unserved areas 
as well as those living in partially served areas, the Commission 
proposes to assign funding in two phases: Phase I will target those 
areas that current data confirms are wholly unserved, and Phase II will 
target those areas that are partially served as well as any areas not 
won in the first phase. By relying on a two-phase process, as the 
Commission did with the Connect America Fund, it can move expeditiously 
to commence an auction in 2020 while also ensuring that other areas are 
not left behind by holding a second auction.
    103. The framework the Commission proposes in this document 
represents its single biggest step yet to close the rural digital 
divide and will connect millions more rural homes and small businesses 
to high-speed broadband networks.
    104. The legal basis for any action that may be taken pursuant to 
the NPRM is contained in sections 4(i), 214, 254, 303(r), and 403 of 
the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254, 
303(r), and 403, and sections 1.1 and 1.412 of the Commission's rules, 
47 CFR 1.1 and 1.412.
    105. 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 proposed rule revisions, if adopted. 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.
    106. The Commission's actions, over time, may affect small entities 
that are not easily categorized at present. The Commission therefore 
describes here, at the outset, three comprehensive small entity size 
standards that could be directly affected herein. First, while there 
are industry specific size standards for small businesses that are used 
in the regulatory flexibility analysis, according to data from the 
SBA's Office of Advocacy, in general a small business is an independent 
business having fewer than 500 employees. These types of small 
businesses represent 99.9% of all businesses in the United States which 
translates to 28.8 million businesses.
    107. Next, the type of small entity described as a ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of August 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).
    108. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, towns, 
townships, villages, school districts, or special districts, with a 
population of less than fifty thousand.'' U.S. Census Bureau data from 
the 2012 Census of Governments indicate that there were 90,056 local 
governmental jurisdictions consisting of general purpose governments 
and special purpose governments in the United States. Of this number 
there were 37, 132 General purpose governments (county, municipal and 
town or township) with populations of less than 50,000 and 12,184 
Special purpose governments (independent school districts and special 
districts) with populations of less than 50,000. The 2012 U.S. Census 
Bureau data for most types of governments in the local government 
category show that the majority of these governments have populations 
of less than 50,000. Based on this data the Commission estimates that 
at least 49,316 local government jurisdictions fall in the category of 
``small governmental jurisdictions.''
    109. The small entities that may be affected are Wireline and 
Wireless Providers, Broadband internet Access Service Providers, 
Satellite Telecommunications, Electric Power Generators, Transmitters, 
and Distributors, and All Other Telecommunications.
    110. In the NPRM the Commission begins the process of seeking 
comment on rules that will apply in the Rural Digital Opportunity Fund 
auction. The Commission proposes establishing three technology-neutral 
tiers of bids available for bidding with varying broadband speed and 
usage allowances, and for each tier propose differentiating

[[Page 43558]]

between bids that would offer either lower or higher latency. Like all 
high-cost ETCs, the Commission proposes that Rural Digital Opportunity 
Fund support recipients would be required to offer standalone voice 
service and offer voice and broadband services meeting the relevant 
performance requirements at rates that are reasonably comparable to 
rates offered in urban areas. The Commission also proposes that Rural 
Digital Opportunity Fund support recipients will be subject to the same 
uniform framework for measuring speed and latency performance along 
with the accompanying compliance framework as all other recipients of 
high-cost support required to serve fixed locations.
    111. The Commission also proposes adopting a 10-year support term 
for Rural Digital Opportunity Fund support recipients along with 
interim service milestones by which support recipients must offer the 
required voice and broadband service to a required number of locations. 
The Commission seeks comment on whether it should adopt additional 
performance requirements to provide incentive for Rural Digital 
Opportunity Fund support recipients to pursue customers in eligible 
areas.
    112. For entities that are interested in participating in the Rural 
Digital Opportunity Fund, the Commission proposes adopting a two-step 
application process and seek comment on whether any adjustments should 
be made or if the application process should be streamlined for certain 
entities. The Commission proposes requiring applicants to submit a pre-
auction short-form application that includes information regarding 
their ownership, technical and financial qualifications, the 
technologies they intend to use and the types of bids they intend to 
place, their operational history, and an acknowledgement of their 
responsibility to conduct due diligence. Commission staff will review 
the applications to determine if applicants are qualified to bid in the 
auction.
    113. The Commission also proposes requiring winning bidders to 
submit a long-form application in which they will submit information 
about their qualifications, funding, and the networks they intend to 
use to meet their obligations. During the long-form application period, 
the Commission also proposes requiring long-form applicants to obtain 
an ETC designation from the state or the Commission as relevant that 
covers the eligible areas in their winning bids. Prior to being 
authorized to receive support, the Commission proposes requiring long-
form applicants to obtain an irrevocable stand-by letter of credit that 
meets its requirements from an eligible bank along with a bankruptcy 
opinion letter. The letter of credit would cover the support that has 
been disbursed and that will be disbursed in the coming year, subject 
to modest adjustments as support recipients substantially build out 
their networks, until the Commission and USAC verify that the applicant 
has met its service milestones. The Commission seeks comment on whether 
the Commission should use alternative measures to protect disbursed 
funds. Commission staff will review the applications and submitted 
documentation to determine whether long-form applicants are qualified 
to be authorized to receive support. The Commission proposes subjecting 
winning bidders or long-form applicants that default during the long-
form application process to forfeiture.
    114. To monitor the use of Rural Digital Opportunity Fund support 
to ensure that it is being used for its intended purposes, the 
Commission proposes to require support recipients to file location and 
technology data on an annual basis in the online HUBB portal and to 
make certifications when they have met their service milestones. The 
Commission also proposes requiring applicants to file certain 
information in their annual FCC Form 481 reports including information 
regarding the community anchor institutions they serve, the support 
they used for capital expenditures, and certifications regarding 
meeting the Commission's performance obligations and available funds. 
Support recipients would also be subject to the annual section 54.314 
certifications, the same record retention and audit requirements, and 
the same support reductions for untimely filings as other high-cost 
ETCs. The Commission seeks comment on whether any adjustments should be 
made to this reporting framework.
    115. For support recipients that do not meet their Rural Digital 
Opportunity Fund obligations, the Commission proposes subjecting such 
support recipients to the framework for support reductions that is 
applicable to all high-cost ETCs that are required to meet defined 
service milestones and to the process the Commission adopted for 
drawing on letters of credit for the Connect America Fund (CAF) Phase 
II auction. The Commission seeks comment on alternatives to this 
proposal.
    116. The Commission also seeks comment on substantive proposals to 
address the impediments to broadband deployment that have resulted in a 
Tribal digital divide.
    117. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include (among others) the following four alternatives: (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. The Commission expects to consider all of these factors when 
it has received substantive comment from the public and potentially 
affected entities.
    118. The Commission seeks comment on a number of issues to ensure 
that small entities have the opportunity to participate in the Rural 
Digital Opportunity Fund auction. For example, the Commission proposes 
to adopt different performance standards for bidders to maximize the 
types of entities that can participate in the Rural Digital Opportunity 
Fund auction.
    119. Based on lessons learned from the CAF Phase II auction, the 
Commission also seeks comment on a two-step application process that 
will allow entities interested in bidding to submit a short-form 
application to be qualified in the auction that it found to be an 
appropriate but not burdensome screen to ensure participation by 
qualified providers, including small entities. Only if an applicant 
becomes a winning bidder would it be required to submit a long-form 
application which requires a more fulsome review of an applicant's 
qualifications to be authorized to receive support. Like the CAF Phase 
II auction, the Commission proposes providing two pathways for 
eligibility for the auction--both (1) for entities that have at least 
two years' experience providing a voice, broadband, and/or electric 
transmission or distribution service, and (2) for entities that have at 
least three years of audited financials and can obtain an acceptable 
letter of interest from an eligible bank. The Commission expects that 
by proposing to adopt two pathways for eligibility and to permit 
experienced entities that do not audit their financial statements in 
the ordinary course of business to wait to submit audited financials 
until after they are announced as winning bidders, more small entities 
will be able to participate in the auction. The

[[Page 43559]]

Commission also seeks comment on whether it should take measures to 
collect less information during the application process from certain 
experienced entities or entities that qualified for the CAF Phase II 
auction, which may also include small entities.
    120. The Commission also proposes permitting all long-form 
applicants, including small entities, to obtain their ETC designations 
after becoming winning bidders so that they do not have to go through 
the ETC designation process prior to finding out if they won support 
through the auction. Recognizing that some CAF Phase II auction 
participants, including small entities, have expressed concerns about 
the costs of obtaining and maintaining a letter of credit, the 
Commission also seeks comment on whether there are viable, less costly 
alternatives that still minimize risk to public funds.
    121. The Commission invites comment from all parties, including 
small entities and participants in the CAF Phase II auction, on 
adopting for the Rural Digital Opportunity Fund generally the same 
service milestones, reporting obligations, and non-compliance measures 
that it adopted for CAF Phase II. The Commission seeks to learn from 
the experience of small entities so that it can balance its 
responsibility to monitor the use of universal service funds with 
minimizing administrative burdens on Rural Digital Opportunity Fund 
participants.
    122. Additionally, the Commission seeks comment on potential 
measures for incentivizing carriers, including small entities, to bid 
on and serve Tribal lands. These measures include implementing a Tribal 
Broadband Factor that accounts for the unique challenges of deploying 
broadband to rural Tribal communities and a Tribal bidding credit.
    123. More generally, the Commission expects to consider the 
economic impact on small entities, as identified in comments filed in 
response to the NPRM and this IRFA, in reaching its final conclusions 
and taking action in this proceeding. The proposals and questions laid 
out in the NPRM were designed to ensure the Commission has a complete 
understanding of the benefits and potential burdens associated with the 
different actions and methods.
    124. Ex Parte Presentations--Permit-But-Disclose. The proceeding 
this NPRM initiates shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. Persons 
making ex parte presentations must file a copy of any written 
presentation or a memorandum summarizing any oral presentation within 
two business days after the presentation (unless a different deadline 
applicable to the Sunshine period applies).
    125. In light of the Commission's trust relationship with Tribal 
Nations and its commitment to engage in government-to-government 
consultation with them, it finds the public interest requires a limited 
modification of the ex parte rules in this proceeding. Tribal Nations, 
like other interested parties, should file comments, reply comments, 
and ex parte presentations in the record to put facts and arguments 
before the Commission in a manner such that they may be relied upon in 
the decision-making process consistent with the requirements of the 
Administrative Procedure Act. However, at the option of the Tribe, ex 
parte presentations made during consultations by elected and appointed 
leaders and duly appointed representatives of federally recognized 
Indian Tribes and Alaska Native Villages to Commission decision makers 
shall be exempt from disclosure in permit-but-disclose proceedings and 
exempt from the prohibitions during the Sunshine Agenda period. To be 
clear, while the Commission recognizes consultation is critically 
important, it emphasizes that it will rely in its decision-making only 
on those presentations that are placed in the public record for this 
proceeding.
    126. Persons making oral ex parte presentations are reminded that 
memoranda summarizing the presentation must (1) list all persons 
attending or otherwise participating in the meeting at which the ex 
parte presentation was made, and (2) summarize all data presented and 
arguments made during the presentation. If the presentation consisted 
in whole or in part of the presentation of data or arguments already 
reflected in the presenter's written comments, memoranda, or other 
filings in the proceeding, the presenter may provide citations to such 
data or arguments in his or her prior comments, memoranda, or other 
filings (specifying the relevant page and/or paragraph numbers where 
such data or arguments can be found) in lieu of summarizing them in the 
memorandum. Documents shown or given to Commission staff during ex 
parte meetings are deemed to be written ex parte presentations and must 
be filed consistent with rule 1.1206(b). In proceedings governed by 
rule 1.49(f) or for which the Commission has made available a method of 
electronic filing, written ex parte presentations and memoranda 
summarizing oral ex parte presentations, and all attachments thereto, 
must be filed through the electronic comment filing system available 
for that proceeding, and must be filed in their native format (e.g., 
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding 
should familiarize themselves with the Commission's ex parte rules.

I. Ordering Clauses

    127. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 4(i), 214, 254, 303(r), and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254, 
303(r), and 403, and sections 1.1 and 1.412 of the Commission's rules, 
47 CFR 1.1 and 1.412, this Notice of Proposed Rulemaking is adopted, 
effective thirty (30) days after publication of the text or summary 
thereof in the Federal Register.
    128. It is further ordered that, pursuant to the authority 
contained in sections 4(i), 214, 254, 303(r), and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254, 
303(r), and 403, and sections 1.1 and 1.412 of the Commission's rules, 
47 CFR 1.1 and 1.412, notice is hereby given of the proposals and 
tentative conclusions described in this Notice of Proposed Rulemaking.

List of Subjects in 47 CFR Part 54

    Communications common carriers, Health facilities, Infants and 
children, internet, Libraries, Reporting and recordkeeping 
requirements, Schools, Telecommunications, Telephone.

Federal Communications Commission.
Marlene Dortch,
Secretary.

Proposed Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission proposes to amend 47 CFR part 54 to read as 
follows:

PART 54--UNIVERSAL SERVICE

0
1. The authority citation for part 54 continues to read as follows:

    Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 
254, 303(r), 403, and 1302 unless otherwise noted.

0
2. Amend Sec.  54.313 by revising paragraph (e) introductory text, 
paragraph (e)(2) introductory text, and paragraph (e)(2)(iii) to read 
as follows:


Sec.  54.313   Annual reporting requirements for high-cost recipients.

* * * * *
    (e) In addition to the information and certifications in paragraph 
(a) of this section, the following requirements

[[Page 43560]]

apply to Connect America Phase II and Rural Digital Opportunity Fund 
recipients:
* * * * *
    (2) Any recipient of Connect America Phase II or Rural Digital 
Opportunity Fund support awarded through a competitive bidding process 
shall provide:
* * * * *
    (iii) Starting the first July 1st after meeting the final service 
milestone in Sec.  54.310(c) or Sec.  54.802(c) of this chapter until 
the July 1st after the Connect America Phase II recipient's or Rural 
Digital Opportunity Fund recipient's support term has ended, a 
certification that the Connect America Phase II-funded network that the 
Connect America Phase II auction recipient operated in the prior year 
meets the relevant performance requirements in Sec.  54.309 of this 
chapter, or that the network that the Rural Digital Opportunity Fund 
recipient operated in the prior year meets the relevant performance 
requirements for the Rural Digital Opportunity Fund.
* * * * *
0
3. Amend Sec.  54.316 by revising paragraphs (a)(4) and (b)(5) to read 
as follows:


Sec.  54.316   Broadband deployment reporting and certification 
requirements for high-cost recipients.

    (a) * * *
    (4) Recipients subject to the requirements of Sec.  54.310(c) or 
Sec.  54.802(c) shall report the number of locations for each state and 
locational information, including geocodes, where they are offering 
service at the requisite speeds. Recipients of Connect America Phase II 
auction support and Rural Digital Opportunity Fund support shall also 
report the technology they use to serve those locations.
* * * * *
    (b) * * *
    (5) Recipients of Rural Digital Opportunity Fund support shall 
provide: By the last business day of the second calendar month 
following each service milestone specified by the Commission, a 
certification that by the end of the prior support year, it was 
offering broadband meeting the requisite public interest obligations to 
the required percentage of its supported locations in each state.
* * * * *
0
4. Revise subpart J, consisting of Sec. Sec.  54.801 through 54.806, to 
read as follows:

Subpart J--Rural Digital Opportunity Fund


Sec.  54.801  Use of competitive bidding for Rural Digital Opportunity 
Fund.

    The Commission will use competitive bidding, as provided in part 1, 
subpart AA of this chapter, to determine the recipients of Rural 
Digital Opportunity Fund support and the amount of support that they 
may receive for specific geographic areas, subject to applicable post-
auction procedures.


Sec.  54.802  Rural Digital Opportunity Fund geographic areas, 
deployment obligations, and support disbursements.

    (a) Geographic areas eligible for support. Rural Digital 
Opportunity Fund support may be made available for census blocks or 
other areas identified as eligible by public notice.
    (b) Term of support. Rural Digital Opportunity Fund support shall 
be provided for ten years.
    (c) Deployment obligation. (1) Recipients of Rural Digital 
Opportunity Fund support must complete deployment to 40 percent of 
supported locations by the end of the third year, to 60 percent of 
supported locations by the end of the fourth year, to 80 percent of 
supported locations by the end of the fifth year, and to 100 percent of 
supported locations by the end of the sixth year. Compliance shall be 
determined based on the total number of supported locations in a state.
    (2) Recipients of Rural Digital Opportunity Fund support may elect 
to deploy to 95 percent of the number of supported locations in a given 
state with a corresponding reduction in support computed based on the 
average support per location in the state times 1.89.
    (d) Disbursement of Rural Digital Opportunity Fund funding. An 
eligible telecommunications carrier will be advised by public notice 
when it is authorized to receive support. The public notice will detail 
how disbursements will be made.


Sec.  54.803  Rural Digital Opportunity Fund provider eligibility.

    (a) Any eligible telecommunications carrier is eligible to receive 
Rural Digital Opportunity Fund support in eligible areas.
    (b) An entity may obtain eligible telecommunications carrier 
designation after public notice of winning bidders in the Rural Digital 
Opportunity Fund auction.
    (c) To the extent any entity seeks eligible telecommunications 
carrier designation prior to public notice of winning bidders for Rural 
Digital Opportunity Fund support, its designation as an eligible 
telecommunications carrier may be conditioned subject to receipt of 
Rural Digital Opportunity Fund support.


Sec.  54.804   Rural Digital Opportunity Fund application process.

    (a) In addition to providing information specified in Sec.  
1.21001(b) of this chapter and any other information required by the 
Commission, any applicant to participate in competitive bidding for 
Rural Digital Opportunity Fund support shall:
    (1) Provide ownership information as set forth in Sec.  1.2112(a) 
of this chapter;
    (2) Certify that the applicant is financially and technically 
qualified to meet the public interest obligations established for Rural 
Digital Opportunity Fund support;
    (3) Disclose its status as an eligible telecommunications carrier 
to the extent applicable and certify that it acknowledges that it must 
be designated as an eligible telecommunications carrier for the area in 
which it will receive support prior to being authorized to receive 
support;
    (4) Describe the technology or technologies that will be used to 
provide service for each bid;
    (5) Submit any information required to establish eligibility for 
any bidding weights adopted by the Commission in an order or public 
notice;
    (6) To the extent that an applicant plans to use spectrum to offer 
its voice and broadband services, demonstrate it has the proper 
authorizations, if applicable, and access to operate on the spectrum it 
intends to use, and that the spectrum resources will be sufficient to 
cover peak network usage and deliver the minimum performance 
requirements to serve all of the fixed locations in eligible areas, and 
certify that it will retain its access to the spectrum for the term of 
support;
    (7) Submit operational and financial information.
    (i) If applicable, the applicant should submit a certification that 
it has provided a voice, broadband, and/or electric transmission or 
distribution service for at least two years or that it is a wholly-
owned subsidiary of such an entity, and specifying the number of years 
the applicant or its parent company has been operating, and submit the 
financial statements from the prior fiscal year that are audited by a 
certified public accountant. If the applicant is not audited in the 
ordinary course of business, in lieu of submitting audited financial 
statements it must submit unaudited financial statements from the prior 
fiscal year and certify that it will provide financial statements from 
the prior fiscal year that are audited by

[[Page 43561]]

a certified independent public accountant by a specified deadline 
during the long-form application review process.
    (A) If the applicant has provided a voice and/or broadband service 
it must certify that it has filed FCC Form 477s as required during this 
time period.
    (B) If the applicant has operated only an electric transmission or 
distribution service, it must submit qualified operating or financial 
reports that it has filed with the relevant financial institution for 
the relevant time period along with a certification that the submission 
is a true and accurate copy of the reports that were provided to the 
relevant financial institution.
    (ii) If an applicant cannot meet the requirements in paragraph 
(a)(7)(i) of this section, in the alternative it must submit the 
audited financial statements from the three most recent fiscal years 
and a letter of interest from a bank meeting the qualifications set 
forth in paragraph (c)(2) of this section, that the bank would provide 
a letter of credit as described in paragraph (c) of this section to the 
bidder if the bidder were selected for bids of a certain dollar 
magnitude.
    (8) Certify that the applicant has performed due diligence 
concerning its potential participation in the Rural Digital Opportunity 
Fund.
    (b) Application by winning bidders for Rural Digital Opportunity 
Fund support--
    (1) Deadline. As provided by public notice, winning bidders for 
Rural Digital Opportunity Fund support or their assignees shall file an 
application for Rural Digital Opportunity Fund support no later than 
the number of business days specified after the public notice 
identifying them as winning bidders.
    (2) Application contents. An application for Rural Digital 
Opportunity Fund support must contain:
    (i) Identification of the party seeking the support, including 
ownership information as set forth in Sec.  1.2112(a) of this chapter;
    (ii) Certification that the applicant is financially and 
technically qualified to meet the public interest obligations for Rural 
Digital Opportunity Fund support in each area for which it seeks 
support;
    (iii) Certification that the applicant will meet the relevant 
public interest obligations, including the requirement that it will 
offer service at rates that are equal or lower to the Commission's 
reasonable comparability benchmarks for fixed wireline services offered 
in urban areas;
    (iv) A description of the technology and system design the 
applicant intends to use to deliver voice and broadband service, 
including a network diagram which must be certified by a professional 
engineer. The professional engineer must certify that the network is 
capable of delivering, to at least 95 percent of the required number of 
locations in each relevant state, voice and broadband service that 
meets the requisite performance requirements for Rural Digital 
Opportunity Fund support;
    (v) Certification that the applicant will have available funds for 
all project costs that exceed the amount of support to be received from 
the Rural Digital Opportunity Fund for the first two years of its 
support term and that the applicant will comply with all program 
requirements, including service milestones;
    (vi) A description of how the required construction will be funded, 
including financial projections that demonstrate the applicant can 
cover the necessary debt service payments over the life of the loan, if 
any;
    (vii) Certification that the party submitting the application is 
authorized to do so on behalf of the applicant; and
    (viii) Such additional information as the Commission may require.
    (3) No later than the number of days provided by public notice, the 
long-form applicant shall submit a letter from a bank meeting the 
eligibility requirements outlined in paragraph (c) of this section 
committing to issue an irrevocable stand-by letter of credit, in the 
required form, to the long-form applicant. The letter shall at a 
minimum provide the dollar amount of the letter of credit and the 
issuing bank's agreement to follow the terms and conditions of the 
Commission's model letter of credit.
    (4) No later than the number of days provided by public notice, if 
a long-form applicant or a related entity did not submit audited 
financial statements in the relevant short-form application as 
required, the long-form applicant must submit the financial statements 
from the prior fiscal year that are audited by a certified independent 
public accountant.
    (5) No later than 180 days after the public notice identifying it 
as a winning bidder, the long-form applicant shall certify that it is 
an eligible telecommunications carrier in any area for which it seeks 
support and submit the relevant documentation supporting that 
certification.
    (6) Application processing. (i) No application will be considered 
unless it has been submitted in an acceptable form during the period 
specified by public notice. No applications submitted or demonstrations 
made at any other time shall be accepted or considered.
    (ii) Any application that, as of the submission deadline, either 
does not identify the applicant seeking support as specified in the 
public notice announcing application procedures or does not include 
required certifications shall be denied.
    (iii) An applicant may be afforded an opportunity to make minor 
modifications to amend its application or correct defects noted by the 
applicant, the Commission, the Administrator, or other parties. Minor 
modifications include correcting typographical errors in the 
application and supplying non-material information that was 
inadvertently omitted or was not available at the time the application 
was submitted.
    (iv) Applications to which major modifications are made after the 
deadline for submitting applications shall be denied. Major 
modifications include, but are not limited to, any changes in the 
ownership of the applicant that constitute an assignment or change of 
control, or the identity of the applicant, or the certifications 
required in the application.
    (v) After receipt and review of the applications, a public notice 
shall identify each long-form applicant that may be authorized to 
receive Rural Digital Opportunity Fund support after the long-form 
applicant submits a letter of credit and an accompanying opinion letter 
as described in paragraph (c) of this section, in a form acceptable to 
the Commission. Each such long-form applicant shall submit a letter of 
credit and accompanying opinion letter as required by paragraph (c) of 
this section, in a form acceptable to the Commission no later than the 
number of business days provided by public notice.
    (vi) After receipt of all necessary information, a public notice 
will identify each long-form applicant that is authorized to receive 
Rural Digital Opportunity Fund support.
    (c) Letter of credit. Before being authorized to receive Rural 
Digital Opportunity Fund support, a winning bidder shall obtain an 
irrevocable standby letter of credit which shall be acceptable in all 
respects to the Commission.
    (1) Value. Each recipient authorized to receive Rural Digital 
Opportunity Fund support shall maintain the standby letter of credit or 
multiple standby letters of credit in an amount equal to at a minimum 
the amount of Rural Digital Opportunity Fund support that has been 
disbursed and that will be disbursed in the coming year, until the 
Universal Service Administrative

[[Page 43562]]

Company has verified that the recipient met the final service milestone 
as described in Sec.  54.802(c).
    (i) Once the recipient has met its 60 percent service milestone, it 
may obtain a new letter of credit or renew its existing letter of 
credit so that it is valued at a minimum at 90 percent of the total 
support amount already disbursed plus the amount that will be disbursed 
in the coming year.
    (ii) Once the recipient has met its 80 percent service milestone, 
it may obtain a new letter of credit or renew its existing letter of 
credit so that it is valued at a minimum at 60 percent of the total 
support that has been disbursed plus the amount that will be disbursed 
in the coming year.
    (2) The bank issuing the letter of credit shall be acceptable to 
the Commission. A bank that is acceptable to the Commission is:
    (i) Any United States bank
    (A) That is insured by the Federal Deposit Insurance Corporation, 
and
    (B) That has a bank safety rating issued by Weiss of B- or better; 
or
    (ii) CoBank, so long as it maintains assets that place it among the 
100 largest United States Banks, determined on basis of total assets as 
of the calendar year immediately preceding the issuance of the letter 
of credit and it has 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); or
    (iii) The National Rural Utilities Cooperative Finance Corporation, 
so long as it maintains assets that place it among the 100 largest 
United States Banks, determined on basis of total assets as of the 
calendar year immediately preceding the issuance of the letter of 
credit and it has 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); or
    (iv) Any non-United States bank:
    (A) That is 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 letter of credit 
(determined on a U.S. dollar equivalent basis as of such date);
    (B) Has a branch office in the District of Columbia or such other 
branch office agreed to by the Commission;
    (C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to a BBB- or better 
rating by Standard & Poor's; and
    (D) Issues the letter of credit payable in United States dollars.
    (3) A long-form applicant for Rural Digital Opportunity Fund 
support shall provide with its letter of credit an opinion letter from 
its legal counsel clearly stating, subject only to customary 
assumptions, limitations, and qualifications, that in a proceeding 
under Title 11 of the United States Code, 11 U.S.C. 101 et seq. (the 
``Bankruptcy Code''), the bankruptcy court would not treat the letter 
of credit or proceeds of the letter of credit as property of the 
winning bidder's bankruptcy estate under section 541 of the Bankruptcy 
Code.
    (4) Authorization to receive Rural Digital Opportunity Fund support 
is conditioned upon full and timely performance of all of the 
requirements set forth in this section, and any additional terms and 
conditions upon which the support was granted.
    (i) Failure by a Rural Digital Opportunity Fund support recipient 
to meet its service milestones as required by Sec.  54.802 will trigger 
reporting obligations and the withholding of support as described in 
Sec.  54.320(d). Failure to come into full compliance within 12 months 
will trigger a recovery action by the Universal Service Administrative 
Company. If the Rural Digital Opportunity Fund recipient does not repay 
the requisite amount of support within six months, the Universal 
Service Administrative Company will be entitled to draw the entire 
amount of the letter of credit and may disqualify the Rural Digital 
Opportunity Fund support recipient from the receipt of Rural Digital 
Opportunity Fund support or additional universal service support.
    (ii) The default will be evidenced by a letter issued by the Chief 
of the Wireline Competition Bureau, or its respective designees, which 
letter, attached to a standby letter of credit draw certificate, shall 
be sufficient for a draw on the standby letter of credit for the entire 
amount of the standby letter of credit.


Sec.  54.805  Rural Digital Opportunity Fund public interest 
obligations.

    (a) Recipients of Rural Digital Opportunity Fund support are 
required to offer broadband service with latency suitable for real-time 
applications, including Voice over internet Protocol, and usage 
capacity that is reasonably comparable to comparable offerings in urban 
areas, at rates that are reasonably comparable to rates for comparable 
offerings in urban areas. For purposes of determining reasonable 
comparable usage capacity, recipients are presumed to meet this 
requirement if they meet or exceed the usage level announced by public 
notice issued by the Wireline Competition Bureau. For purposes of 
determining reasonable comparability of rates, recipients are presumed 
to meet this requirement if they offer rates at or below the applicable 
benchmark to be announced annually by public notice issued by the 
Wireline Competition Bureau, or no more than the non-promotional prices 
charged for a comparable fixed wireline service in urban areas in the 
state or U.S. Territory where the eligible telecommunications carrier 
receives support.
    (b) Recipients of Rural Digital Opportunity Fund support are 
required to offer broadband service meeting the performance standards 
for the relevant performance tier.
    (1) Winning bidders meeting the baseline performance tier standards 
are required to offer broadband service at actual speeds of at least 25 
Mbps downstream and 3 Mbps upstream and offer a minimum usage allowance 
of 150 GB per month, or that reflects the average usage of a majority 
of fixed broadband customers, using Measuring Broadband America data or 
a similar data source, whichever is higher, and announced annually by 
public notice issued by the Wireline Competition Bureau over the 10-
year term.
    (2) Winning bidders meeting the above-baseline performance tier 
standards are required to offer broadband service at actual speeds of 
at least 100 Mbps downstream and 20 Mbps upstream and offer at least 2 
terabytes of monthly usage.
    (3) Winning bidders meeting the Gigabit performance tier standards 
are required to offer broadband service at actual speeds of at least 1 
Gigabit per second downstream and 500 Mbps upstream and offer at least 
2 terabytes of monthly usage.
    (4) For each of the tiers in paragraphs (b)(1) through (3) of this 
section, bidders are required to meet one of two latency performance 
levels:
    (i) Low latency bidders will be required to meet 95 percent or more 
of all peak period measurements of network round trip latency at or 
below 100 milliseconds; and
    (ii) High latency bidders will be required to meet 95 percent or 
more of all peak period measurements of network round trip latency at 
or below 750 ms and, with respect to voice performance, demonstrate a 
score of four or higher using the Mean Opinion Score (MOS).
    (c) Recipients of Rural Digital Opportunity Fund support are 
required to bid on category one

[[Page 43563]]

telecommunications and internet access services in response to a posted 
FCC Form 470 seeking broadband service that meets the connectivity 
targets for the schools and libraries universal service support program 
for eligible schools and libraries (as described in Sec.  54.501) 
located within any area in a census block where the carrier is 
receiving Rural Digital Opportunity Fund support. Such bids must be at 
rates reasonably comparable to rates charged to eligible schools and 
libraries in urban areas for comparable offerings.


Sec.  54.806  Rural Digital Opportunity Fund reporting obligations, 
compliance, and recordkeeping.

    (a) Recipients of Rural Digital Opportunity Fund support shall be 
subject to the reporting obligations set forth in Sec. Sec.  54.313, 
54.314, and 54.316.
    (b) Recipients of Rural Digital Opportunity Fund support shall be 
subject to the compliance measures, recordkeeping requirements, and 
audit requirements set forth in Sec.  54.320.

[FR Doc. 2019-17783 Filed 8-20-19; 8:45 am]
BILLING CODE 6712-01-P