Yesterday, the FCC released its long-awaited order establishing a framework for competitors to obtain broadband subsidies (support) through Phase II of the Connect America Fund (CAF). The 212-page Order and Further NPRM sets forth the framework for competitive providers (including cable operators, CLECs, and fixed wireless ISPs) to bid for support to deploy broadband and voice services in high-cost unserved areas of the country. Under the framework adopted in earlier decisions, the FCC will make Phase II support available to competitive providers in areas where a price cap LEC (i.e., the largest carriers such as Verizon, AT&T and CenturyLink) declines model-based support. In those circumstances, the agency will release the uncommitted support to competitive providers pursuant to a competitive bidding process that will be conducted as a reverse auction.


The Order takes several significant steps towards finalizing a policy framework that will permit competitors to participate in the CAF program through a competitive bidding process. First, the Order resolves several open issues concerning participation in the program through a competitive bidding process, including the adoption of a ten year support period and broader definition of permissible funding areas. Second, the Order clarifies several open issues surrounding necessary eligible telecommunications carrier (ETC) designations required of all competitive bidders. Third, although the Order leaves the Phase II challenge process unchanged, it raises significant questions concerning potential rule changes that may result in overbuilds of competitors’ networks. Finally, the Order raises many more questions in a Further NPRM that must be addressed before final implementation of Phase II competitive bidding process. The Commission expects to make final decisions regarding the mechanics of the Phase II competitive bidding process by the end of 2014.

Competitors’ participation in this program is not without a price. Recipients of CAF support are required to satisfy certain “public interest” obligations associated with their broadband services, including meeting speed, latency and usage capacity obligations. However, some see these obligations as impermissible common carriage regulations on broadband providers. The FCC rejects that argument and reasons that these obligations are mere conditions to receipt of CAF support, accepted on a voluntary basis by the price cap LECs who elect to receive such support. More significantly, after the Commission’s decision to dismiss an NCTA Application for Review, these obligations will also apply to competitors challenging the allocation of CAF support to any particular census block they serve.

We expect the Commission will soon implement the next steps in this proceeding by publishing a notice of census blocks that are eligible for funding under Phase II. As we explained in a prior DWT Alert, that will begin a challenge process. Carriers who provide broadband and voice service in any of those census blocks will then have 45 days to file evidence demonstrating that they provide qualifying service in that census block—in other words, showing that the area is served.  A price cap LEC seeking funding for a challenged census block will then have 45 days to file rebuttal evidence showing that broadband provider does not meet the qualifying criteria, and that the census block should be designated as unserved. The FCC will reconcile that data and publish a final list of unserved census blocks eligible for Phase II funding.

As noted above, if a price cap LEC declines the offer of support under Phase II, those funds will be available to competitors through the competitive bidding process. A summary of the Order and Further NPRM can be found in our DWT Alert.

Comments on the issues raised in the Further NPRM will be due 30 days after its publication in the Federal Register, which has not yet occurred. Please contact us if you have any questions about this proceeding, the challenge process or competitive bidding procedures.