Updated: Feb. 12, 2020

The Federal Communications Commission has released the final order for the biggest pot of federal funds yet for rural broadband.

The $20.4 billion Rural Digital Opportunity Fund “will go a long way toward bringing high-speed internet to many rural communities that are being left behind in the digital economy,” said Brian O’Hara, NRECA senior director of regulatory issues for broadband and telecom.

The FCC voted Jan. 30 to finalize the rules of the RDOF. Here’s key information for electric co-ops:

The Pot and the Plots

The RDOF will be divided into two phases with each allocating funds to winning bidders over 10 years.

Bidding in Phase I of the auction is proposed to open Oct. 22, with $16 billion going to census blocks that lack fixed voice service and internet access with a minimum download/upload speed of 25 megabits per second/3 Mbps.

The remaining funds will go to the $4.4 billion Phase II auction, plus the possibility of additional monies. No date has been set for Phase II bids.

The FCC has made available a state-by-state list of the total number of estimated locations available for Phase I. About 25 states have more than 100,000 areas that would be eligible, according to the commission. The FCC plans to release a preliminary map of eligible areas.

As it did with the 2018 Connect America Fund II, the FCC will rely on data from internet service providers to determine whether a census block will be eligible—a move that can hurt rural communities.

“This process can lead to inaccuracies in who has broadband because providers must report a census block as ‘served’ even if only one location in the census block obtains fixed voice and 25/3 Mbps broadband services,” said O’Hara.

Areas that have received, or are slated to receive, financial support for fixed broadband from CAF II bids, the FCC’s Rural Broadband Experiment grants, the U.S. Department of Agriculture’s ReConnect program, or state funds will be ineligible for the RDOF.

Winning bidders in the RDOF must serve every home and business within the auctioned census block group. No additional money will be awarded if more locations are found than initially identified. This is another departure from the CAF II rules, which required bidders to serve only locations specified by the FCC within a census block group.

Phase I is expected to connect an estimated total of 6 million rural homes and businesses.

Contested service areas could be rolled into Phase II of the RDOF, when the FCC is expected to have improved broadband data collection and mapping.

Built for Speed

The RDOF sets a minimum download/upload speed of 25 megabits per second/3 Mbps. This is up from 10 Mbps/1 Mbps in the $1.5 billion CAF II auction.

The RDOF will employ a weighted tier system plus a new “clearing round” provision that will support bids for the fastest network. NRECA had recommended such weighted performance tiers and bidding rules to the FCC for the RDOF.

“This is a big win,” said O’Hara. “More locations in rural America can now get a faster network.”

The CAF II also used a weighted tier system but allowed the lowest bidders—often with inferior service—to beat out co-ops and other providers offering faster, more reliable broadband networks at a higher price. Co-ops that lowered bids and won ended up paying more out of pocket to build their broadband network.

As in CAF II, RDOF requires winning bidders to meet buildout milestones: 40% completion by the end of year three, then 20% per year through year six. Winners will have until the end of year eight to serve any additional locations not initially included in the census unit. Failure to meet buildout milestones will result in escalating non-compliance penalties.

NRECA teamed with several organizations, including competitive telecom providers, to urge the FCC to lower the financial burdens associated with bidding on these unserved rural areas. In a joint letter, the groups asked the commission to reduce the direct and indirect costs for obtaining and maintaining letter of credit requirements.

FCC’s letter of credit (LOC) requirements track NRECA’s proposal to limit the progressive annual increase in the LOC imposed on CAF II winners.

Pole Attachment Status Quo

In another win for co-ops, the RDOF will not subject them to new pole attachment regulations for broadband fiber on their own poles. A number of incumbent internet providers had urged the commission to require that co-ops that win bids fulfill FCC pole attachment requirements and costs.

NRECA sent an updated white paper, Broadband Deployment in Rural America Not Impeded by Pole Attachment Rates, and a letter to the FCC with evidence that these charges by co-ops have little to no impact on internet service providers.

“While large, for-profit communications companies focus on excuses for not deploying broadband to rural communities, electric co-ops are focused on solutions to bring broadband to unserved and underserved areas,” O’Hara said.

The Big Explainer

FCC staff will hold an educational session on RDOF at NRECA’s TechAdvantage on March 2 in New Orleans. The commission has labeled RDOF a top priority and wants the auction to move quickly and smoothly.

FCC Chairman Ajit Pai said the RDOF is the commission’s “boldest step yet to bridge this divide” and that its “benefits would be felt from the Pacific Coast to the Great Plains, and from Appalachia to the Gulf Coast.”

The session will cover the reverse auction process, the potential timeline and steps for co-ops to take to participate.

Lingering Concerns for Co-ops

Co-ops carried two major concerns as the commission prepared to finalize the rules for the RDOF: costly letter of credit (LOC) requirements and a slow baseline speed.

Curtis Wynn, NRECA president and CEO of Roanoke Electric Cooperative in Aulander, North Carolina, and Mike Keyser, CEO of BARC Electric in Millboro, Virginia, recently brought these concerns to the FCC.

The final order eases the LOC burden in a move to expand RDOF participation and incentivize faster deployment. Pai said the changes could reduce the cost by up to 80%.

NRECA had asked the FCC for a 100/100 Mbps baseline to help in “future-proofing these systems,” said Wynn. The FCC’s insertion of a 50/5 Mbps baseline could undermine that effort.

As winning bids are allocated over 10 years, any network built to 50 Mbps “will be antiquated by the end of the RDOF period,” Wynn said.

Despite concerns about the FCC’s outdated broadband service maps, co-ops are pleased the commission is moving forward with the RDOF Phase I auction of completely unserved census blocks.

“Our unserved and underserved customers can’t wait any longer,” Keyser said. “This initial $16 billion round is absolutely necessary to go forward.”

Wynn underscored the major financial responsibility co-ops take on when they enter the broadband space. His co-op, which serves some of the country’s poorest counties, saw its request for proposal to lease its fiber backbone for retail broadband fail to attract interest.

“That forced us to build it ourselves—for quality-of-life reasons,” said Wynn. “(But the job) cannot be done solely on the financial strength of the co-op. Without RDOF, it will not happen, and rural America will be left behind.”

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