Private telephone companies, cooperatives and other fixed-base wireless and start-up internet service providers are preparing to bid in July in a Federal Communications Commission auction that earmarks $198 million a year ($2 billion over 10 years) to subsidize new service in rural areas now lacking meaningful internet access.

In announcing the auction, FCC Chairman Ajit Pai said the agency had planned it for years, and "we need and want everyone to participate: rural telcos, electric co-operatives, cable operators, price-cap carriers, satellite companies, and fixed wireless providers . . . regardless of how you deliver connectivity." Nonetheless, some installers of both fiber wire cable and wireless broadband systems give mediocre marks, at best, to the fairness and inclusiveness of the FCC's auction rules.

"The rules and procedures the FCC ultimately adopted are still pretty complicated . . . (and) geared toward large providers  . . . as opposed to our smaller guys who typically use (publicly available) unlicensed spectrum," said Claude Aiken, president of the Wireless Internet Service Providers Association (WISPA). Nonetheless, he expects, "some members “are still willing to go through the necessary paperwork and do all the things necessary. . . to bid.”

The auction is called Connect America Fund Phase II (CAF-II) and will be one more down payment by the federal government to extend high speed internet service to more rural homes and businesses. In its first big CAF campaign, started in 2015, FCC offered major telecommunications (called “price-cap”) companies up to $9 billion overall to bring combined broadband and voice services to underserved rural areas. Ten of them applied for the FCC cash and are using it to continue expansion into areas they consider profitable. CAF-II is the FCC follow-up and will subsidize service to unserved areas left behind in CAF-I.

In fact, broadly, the FCC and USDA’s Rural Utilities Service continue to fund deployment of fiber cable and fixed wireless broadband plus mobile phone service with a bevy of loans, grants and subsidies. What’s more, the FCC has set $4.5 billion on its shelf, for example, to help finance mobile (cell phone) service in poorly served rural areas. Plus, it is buying back some segments of assigned radio spectrum and assigning new slices of it to accommodate the soaring demands for spectrum to carry mobile broadband.

When compared to the $9 billion for major companies, rural broadband advocates view the $2 billion for the decade of CAF-II expansions as a bit paltry, considering the high cost of investment to install fiber or even fixed wireless systems in remote areas. (But note that while a 15.5 percent cut in the FCC’s expected spending to assist “small rural carriers,” pointed out  recently by Commission Chairman Ajit Pai, will affect operating subsidies for existing rural telephone companies, it won’t hit the CAF-II or other broadband expansion programs.)

Indeed, the challenge in catching rural internet services up with what urban folks get is great. FCC says in its 2018 Broadband Deployment Report (data as of late 2016) that about 98 percent of Americans had access to either fixed service at 25 megabits per second (Mbps) download and 3 Mbps upload, or mobile phones with 10 Mbps download and 3 Mbps upload. But, for rural areas, the figure falls to 90 percent. FCC estimates that over 24 million Americans still lacked fixed download speeds of 25 Mbps at the end of 2016.

Those levels of service compare with what the FCC maintains as its “benchmark speed” for providers eligible for financial assistance: 25 Mbps download and 3 Mbps upload for fixed internet (fiber or wireless) services, though companies deploying much slower speeds still get FCC dollars.

The latest report from Orka’s Speedtest, which surveys the levels and advances in broadband service annually in many countries, found Americans’ average download speed on fixed internet soared from 48 Mbps in early 2016 to 91.5, up 90 percent, early this year, while their average mobile download jumped to 28.1 Mbps early this year, up almost 50 percent in two years. (Speedtest scored the U.S. well back in the global pack, however, with fixed download average speed ninth among nations; U.S. mobile devices’ average speed, 44th.)

Speedtest also surveys the share of time online that consumers who actually have internet service receive an “Acceptable Speed Ratio,” which it pegs at 5 Mbps or more, which “allows a user to do most of the things they expect on their phone.” For consumers in metropolitan areas, that was 76 percent of the time in early 2017; in rural service areas, 70 percent.

The framework of the CAF-II auction, meanwhile, like most any federally-funded initiative, gets mixed reviews across the range of expected participants.

The FCC proposed a U.S. map last fall with all rural areas to be eligible for CAF-II in predetermined clumps of Census tracts, and then decided in December, on the basis of updated data, to shrink those areas by about 30 percent overall. Many of the expected participants complain about both the grouping and the withering of the targeted districts.

Though grouping census districts “made it a lot easier for them (FCC),” says Brian O'Hara, senior director of regulatory issues for the National Rural Electric Cooperative Association. “Talking to my members, they’ve said the Census block groups do not line up well with their service territories where they have infrastructure.”

Grouping the districts would mean installing new equipment and facilities in order to service such areas, O’Hara said, and he knows some co-ops have formed consortiums in order to feasibly cover some of the larger tracts the FCC has designated.

The disappearance of districts from the FCC’s earlier map is more important for some co-ops than others, O’Hara expects. “One company had said they were eligible for $8 million, estimated from the original maps . . . (but) that went down to $50,000 in the second set of maps. That’s a huge difference in money,” and he says the change resulted because “the incumbent (phone company) reported that it served a lot more of that area.”

“We have many members that were – and some who still are – interested in the CAF II auction,” he said, and “what I really want to see is how many of my members can actually use (the FCC auction).” 

Asked about the reduction in eligible areas, Mark Wigfield, FCC media relations representative, said telephone companies provide the agency with updated information on operations every six months, and, “basically what happened was we got new data.” The first map “was relying on very old data . . . and we’re not going to subsidize service to compete with places where there is an unsubsidized competitor. It’s just not fair,” he said.

On the other hand, Jonathan Chambers, a current partner in Arkansas-based Conexon, a consultant group for rural broadband development systems and a former FCC internet services strategist, points out that the FCC bases its maps on telephone companies’ self-reported advertising in the agency’s Form 477. As a result, he said, the agency trimmed more than 400,000 potential rural home and business customers from eligibility and then made an exception to its usual procedures that did not allow anyone to challenge the data used.

Fixed wireless operators also have some difficulties with the rules and parameters FCC set for the CAF-II auction, including the predetermined grouping of Census districts.

WISPA's Aiken says that, as with CAF-II, FCC is also moving to assign enlarged marketing areas in its upcoming auction of Citizens Broadband Radio Service spectrum, rather than Census districts or other small areas. That makes it very difficult for most small operators to enter the market.

He says the agency did ease up somewhat on the paperwork for CAF-II but “the rules and procedures the FCC ultimately adopted are still pretty complicated. Our members are pretty small businesses, and many don’t have a lawyer on staff.”

Still, Aiken says, “some members are still willing to go through the necessary paperwork and do all the things necessary. . . to bid.”

The incremental tiers FCC set for level of service offered, and subsidies provided for each, are weighted toward rewarding fast, high-capacity service, say both co-ops laying cable and fixed-wireless operators.

Fiber cable service is much more expensive than fixed-wireless, but O’Hara points out, “we want this to be forward looking. You put fiber in, and that’s going to last for 30-plus years.” Besides, he said, fiber service can be upgraded later at the consumer’s end – “it’s scalable,” he says.

Aiken agrees that fiber provides the best service. The CAF II tier system for subsidies, he said, “is based on an FCC-adopted cost model, which is based on a fiber deployment, which is significantly more expensive than a fixed wireless deployment.” Thus, fiber deployment gets much more of the FCC cash.

But he says, “It goes back to a tradeoff: Are you looking to serve more Americans versus fewer, and how cost-effective is it going to be?”

In any case, the FCC’s Wigfield notes the agency will follow up this auction with a “Remote Areas Fund” auction in 2019.

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