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Tuesday
Nov222011

Introducing the Mobility Fund: “A National Priority”

FCC Acknowledges Complementary Nature of Fixed and Mobile Broadband

Earlier this week, JSI Capital Advisors gave a first look at the overall Universal Service Fund reforms for price cap and rate-of-return LECs, but now we are switching gears and diving into the newly-established, first-of-its-kind Mobility Fund intended for both rapid and longer-term mobile network deployment and recovery. Overall, the Mobility Fund text contained some surprises, some departures from last year’s Mobility Fund NPRM and some potential opportunities for small wireless carriers.

The first phase of the Mobility Fund, expected to be implemented before the end of 2012, “will provide one-time support through a reverse auction, with a total budget of $300 million, and will provide the Commission with experience in running reverse auctions for universal service support.” Reverse auctions are uncharted waters, and the precise methodology will primarily be determined by the Wireless and Wireline Bureaus in forthcoming proceedings. However, the FCC did lay down some ground rules which are discussed at greater detail below. Perhaps the biggest “win” in the Mobility Fund comes in Phase II, which will distribute up to $500m annually (including $100m specifically for Tribal Lands). The initial Mobility Fund NPRM recommended a one-time investment of $100-300m only, but due to outcries from the wireless industry the FCC decided to implement a dedicated annual mobile broadband fund.

Phase I – A “Jump Start” to Reducing Mobility Gaps

The one point that the FCC emphasizes repeatedly about Phase I is that it is one-time funding intended for one provider per unserved area to rapidly deploy mobile voice and broadband. This does not mean that Phase I funding is specifically intended to go to the highest-cost areas—those problems will be solved with Phase II and the new $100m/year Remote Areas fund. The FCC intends to support only one carrier per unserved area (based on census blocks), because “permitting multiple winners as a routine matter in any geographic area to serve the same pool of customers would drain Mobility Fund resources with limited corresponding benefits to consumers.” However, there may be occasional overlaps in supported service areas so long as the separate carriers are adding to the number of road miles served in an unserved area and not both serving the same customers. The FCC is ardently hoping to avoid a repeat of the current CETC situation, where multiple carriers receive funding without actually improving service in unserved areas. Mobility funding is also not intended for carriers to use to complete existing deployment plans or other regulatory commitments.

The FCC attacks many of the arguments presented in last year’s Mobility Fund NPRM comments, including the argument that Phase I will not provide “sufficient and predictable support.” The FCC contends that “Bidders are presumed to understand that Mobility Phase I will provide one-time support, that bidders will face recurring costs when providing service, and that they must tailor their bid amounts accordingly.” The FCC also defends the reverse auction mechanism: “we believe it is the best available tool” for identifying areas in need of mobile voice and broadband deployment “in a transparent, simple, speedy and effective way.”

Many small wireless carriers showed great concern that the reverse auction process would unfairly favor large companies, with some commenters even requesting that Tier I carriers, like Verizon Wireless, be barred from participating. Unfortunately, the FCC was “unpersuaded” by these arguments and insists that there will be “opportunities for smaller providers to compete effectively at auction.” Furthermore, parties such as the Blooston Rural Carriers argued that reverse auctions would “lead to construction and equipment short-cuts due to cost cutting measures,” but the FCC held that there will be “clear performance standards and effective enforcement of those standards.”

So what are the standards, methodologies and enforcement measures? Much of the auction methodology will be determined via future proceedings, but the FCC set a fairly clear framework. Some of the Mobility Fund Phase I rules and guidelines include:

  • Unserved areas will be determined on a census block basis, support can be offered for groups of unserved census blocks (census tracts).
  • Road miles are the unit of measurement, not population.
  • American Roamer data will be used to determine unserved areas: “American Roamer data is recognized as the industry standard for the presence of service.” Although it is not perfect, the FCC felt that American Roamer data was better than the National Broadband Map, where “inconsistencies with respect to wireless service have been noted.”
  • The Bureaus will decide if census blocks can be aggregated, or if there will be a minimum eligible area for bidding.
  • There will be no prioritization of unserved areas, and all unserved areas are equally eligible.
  • Recipients are required to provide 3G or 4G service. The 3G floor is 200/50 kbps and the 4G floor is 768/200 kbps throughout the entire cell area (edge included). However, speeds will most likely be much higher near the base station to reflect the 4/1 Mbps CAF standard.  
  • Recipients will have 2 years to deploy 3G or 3 years to deploy 4G; in either case at least 75% of the road miles must be covered. The percent of support received will also be contingent on the percent of road miles that must be served, as determined by the Bureaus.
  • Recipients who build new towers with the funding must allow for collocation, they must also comply with voice and data roaming requirements. Noncompliance could result in sanctions, penalties, and ineligibility for future funding.
  • Rates and data capacity must be reasonably comparable to urban areas.
  • Eligibility will be based on 3 criteria: ETC designation, access to spectrum for at least five years, and demonstrated financial and technical capability. There will be a short-form and long-form application process akin to spectrum auctions.
  • Funding to winners will be distributed in 3 installments: one-third when the long-form application is approved, one-third when 50% of the recipient’s minimum requirement is served, and the final one-third once the project’s requirements are fully met.

One aspect that was particularly positive was that the FCC seemed to acknowledge the complementary nature of fixed and mobile broadband by not excluding census blocks served by fixed services from receiving Phase I support. According to the FCC, “The ability to communicate from any point within a mobile network’s coverage area lets people communicate at times they may need it most, including during emergencies. The fact that fixed communications may be available nearby does not detract from this critical benefit.”

Phase II - Hello $500m Annual Budget, Goodbye Identical Support Rule

Although many of the details of Phase II are yet to be worked out, the FCC explains that Phase II will include “a budget of $500 million to promote mobile broadband…where a private sector business case cannot be met without federal support.” $100m will be dedicated specially to Tribal Lands (which will be discussed in a future article). The FCC believes that this budget is appropriate. Although it is less than CETC Identical Support in recent years, the $500m/year “will be sufficient to sustain and expand the availability of mobile broadband.” Furthermore, “mobile providers may also be eligible for support in CAF 1 areas where price cap carriers opt not to accept the state-level commitment, in addition to Mobility Phase II support.”

The trade-off of course is that the much-maligned Identical Support Rule will be eliminated. The FCC explains that in 2010, “about $611 million went to one of the four national wireless providers,” and $579m went to small and mid-sized wireless carriers (out of $1.2b total). According to the FCC, “identical support does not provide appropriate levels of support for the efficient deployment of mobile services in areas that do not support a private business case for mobile voice and broadband.”

The intention is that the Mobility Fund will revamp support for competitive wireless carriers so that funding reflects the efficient costs of providing service in unserved and underserved areas, not the costs of overbuilding already highly competitive and well-served areas. As we saw in the details about Phase I CAF, the FCC is definitely dedicated to making sure support goes where it is needed most—areas that have little or no fixed or mobile broadband today.

What are your thoughts on the Mobility Fund and the elimination of the Identical Support Rule?

The full USF Reform Order is available here, with pages 108-174 covering the Mobility Fund.

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