FCC Gears Up for Reverse Auctions

[Source: Connected Planet, by Joan Engebretson, May 5, 2011]

But many questions remain about how broadband funding for unserved areas would be awarded

Last week’s FCC workshop on Universal Service reform was a reminder of just how serious the commission is about the idea of using a reverse auction to award funding for areas that do not currently get broadband service. The workshop also revealed that many decisions about how such an auction would work have yet to be made.

Workshop draws diverse stakeholders


On hand for the workshop session about reverse auctions were a half-dozen or so FCC officials, as well as representatives of stakeholder organizations including wireless and cable operators along with rural telcos. Also participating was Greg Rosston, deputy director of the Stanford Institute for Economic Policy Research, an economist who filed comments in response to the FCC’s notice of proposed rulemaking about transforming the high-cost Universal Service program into a broadband program. Based on the comments that the FCC people made at the workshop, several messages were loud and clear:

The commission appears set on the idea of awarding funding to only one operator per geographic area. It also appears set on the 4 Mb/s downstream- 1 Mb/s upstream minimum target speed, which means the winner could be a cellular, fixed wireless or landline operator—or possibly a satellite operator. The idea is to award funding to whichever company offers to provide service for the lowest level of monetary support. One official said the commission envisions a specific dollar amount being allocated to the reverse auction.

Among the questions still to be answered:


- Who should be allowed to bid?
- How should geographic areas be determined?


- Should bidders be allowed to place a single bid for a package of geographic areas? This is an idea Rosston likes, arguing that it will introduce a greater level of competition into the process.


- Should any consideration be given to providers offering speeds above the minimum and if so, what?


- Should carriers be required to serve every home in their serving area? This is a requirement of today’s voice-focused Universal Service program. But the commission apparently is considering alternatives for the broadband program, such as charging customers an extra fee if their location is beyond a certain distance from the network operator’s point of presence—a practice that apparently is quite common for cable franchises.


- If the total of the lowest bids for all areas exceeds the money allocated for the program, how should you rank the bids? Do you start awarding the areas requiring the lowest support first or the areas requiring the highest support—or do you start somewhere in between?


- How do you make sure you have the latest information about which homes are unserved?

How rural telcos see it

The more you ponder questions such as these, the more you realize what a departure the proposed program would be from today’s high-cost program, in which funding is based on what it costs the incumbent telco to provide voice service to an area.

Most small telcos run their voice service over fiber or fiber-plus-copper infrastructure that also supports broadband—and as a result, they have been able to cover some of the costs of deploying broadband through today’s program. Accordingly most of the homes in rural telco territories are not considered “unserved” in terms of the proposed broadband program and therefore are not impacted by the reverse auction plans—at least not yet.

It’s quite common, however, for a small telco to have some percentage of unserved homes in its territory—often at the outer reaches of the serving area. According to the FCC, homes in small telco territories comprise about one third of the 7 million unserved U.S. homes.

Ironically if the current voice-focused program were to remain in place, the rural telcos might have gotten broadband to some of these homes over the next few years. But the small telcos have been reluctant to pursue such deployments as it is not clear whether they will be able to recover their costs under the new program.

Any rural telco customers that do not have broadband available to them by the time the reverse auction plans are formalized would be part of the auction if everything moves ahead as the FCC is planning.

In view of this, one proposal made at last week’s workshop was that incumbent telcos should have a right of first refusal for unserved homes in their territory. Although the idea was not discussed in detail, I assume this means that if the rural telco was not the winning bid, it would have the option of serving the unserved customers at the level of support proposed by the winning bidder.

Jason Hendricks, director of government relations and regulatory affairs for rural telco RT Communications, was the one who brought up this idea. Hendricks also suggested that the reverse auction idea should be tested first in areas where a price cap carrier such as AT&T or Verizon is the incumbent. According to the FCC, about two thirds of unserved homes are in that category.

Both of Hendricks’ ideas would seem to be worth further exploration. Satellite’s role is unclear; 700 MHz spectrum holders could be sitting pretty

Two last thoughts:

First, it’s unclear what role satellite broadband, which is nearly ubiquitous, would play in a reverse auction. Someone asked why satellite providers should need any monetary support since the satellites are already up there and costs don’t vary from one area to another. The answer provided was that the funding could help satellite providers continue to launch newer and better satellites capable of supporting higher and higher bandwidth.

So should satellite operators be allowed to bid just like operators of other technologies? Or should satellite be treated as some sort of fallback option if no one bids in a certain area? These are other questions that still need to be answered.

Also, an important implication of the reverse auction proposal is that a substantial amount of funding could go to AT&T and Verizon, as both companies have plans for wide-scale LTE deployments at 700 MHz. LTE data rates would quality as broadband under the proposed definition—and according to research released from the FCC last year, wireless service at 700 MHz would be the most economical means of getting broadband to about 90% of the unserved homes in the U.S.

Recognizing this, perhaps it’s not surprising that Verizon is having such success in signing up partners for its rural LTE program. Depending how the reverse auction for unserved areas unfolds, those and other rural operators with 700 MHz spectrum could be among relatively few rural telcos winning funding.