December ten, 2015 – 4: 15 pm

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

Background

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

  • The Commission’s Connect America Fund (as in opposition to Lifeline, E-Rate or rural healthcare) has separate programs for price cap carriers and rate associated with return carriers.
  • Earlier this year, incumbent price cap carriers had the right-of-first-refusal (ROFR) to elect – on a condition by state basis – to take CAF support to provide broadband within their territories.
  • For those areas not selected with the incumbents, and potentially some extra high-cost areas, the Commission is set to hold a reverse auction by which broadband providers would be selected to offer service in these areas. In a reverse auction, providers would bid down on how much Commission CAF support they would receive to serve an area with broadband.
  • The Commission has talked about making available $175 million per year (or $1. 75 billion over ten years) for the CAF Post-ROFR Invert Auction.

Fundamental Principles

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

Updated:

December 10, 2015 – 4: 15 pm