Petition for Reconsideration of USF/ICC Order Focused on Pitfalls of Reverse Auctions
Eighteen rural wireless stakeholders, collectively the Blooston Rural Carriers, submitted a Petition for Reconsideration of the USF/ICC Transformation Order on December 29, 2011. The law firm of Blooston, Mordkofsky, Dickens, Duffy & Prendergast, LLP wrote arguments against reverse auctions and several aspects of the Mobility Fund Phase I on behalf of these companies. The Blooston Rural Carriers argued that reverse auctions will create a “race to the bottom” and may provide opportunities for deceptively low and anti-competitive bidding. Additionally, the process favors large carriers and does not include sufficient provisions to ensure small rural providers will participate or be successful in winning Mobility Fund support. The Blooston Rural Carriers also argue that the FCC has essentially ignored several of their previous comments (and warnings) about reverse auctions in the Mobility Fund NPRM and CAF proceedings.
The FCC alleges that reverse auctions are the best possible methodology to distribute Mobility Fund Phase I support (and most likely CAF and Mobility Fund Phase II support too), but the Blooston Rural Carriers ask, are reverse auctions really the best way? The petition explains that reverse auctions are “susceptible to a number of shortcomings that ultimately undermine the Commission’s intention of expanding existing coverage to unserved areas in the most economic way possible.”
The Blooston Rural Carriers have made several attempts over the past year to convince the FCC that reverse auctions would be detrimental not only to small carriers, but the goals of USF overall. However, it appears as though many of Blooston’s pleas have gone unacknowledged by the FCC despite the fact that “Courts have long held that an agency must respond to ‘relevant’ and ‘significant’ comments.” The Blooston Rural Carriers snipe, “The opportunity to comment is meaningless unless the agency responds to significant points raised by the public.”
The Blooston Rural Carriers did indeed raise one significant point in their petition that should produce an interesting response from the FCC: Tier One wireless carriers be limited or prohibited from receiving Mobility Fund support. The Blooston Rural Carriers explain, “USF funds are limited, and the Mobility Fund rules must recognize that no Tier One carrier requires financial assistance to complete its buildout.” The USF/ICC Transformation Order makes $300m available in Phase I via reverse auction, where any carrier can participate in the auction and no areas will be prioritized (The ILEC Advisor: Introducing the Mobility Fund: “A National Priority”). This means that Verizon and Sprint, who voluntarily surrendered USF support in exchange for merger approval, will actually be able to participate in (and possibly win) reverse auctions for support they have allegedly given up.
The Blooston Rural Carriers refer to Verizon, explaining, “Were it not for the Commission’s conditioning the Alltel merger upon a phase-down of USF receipts, it stands to reason that the merged entity would have remained the largest recipient of high-cost funding.” Verizon and AT&T saw profits in 2010 of well over $10b, which certainly begs the question of exactly why the big companies need money to deploy a few extra towers in unserved areas. According to the Blooston Rural Carriers, “Notwithstanding the fact that the recent annual profits of either AT&T or Verizon could fund the entire proposed $4.5b annual high-cost program budget with room to spare…the Commission is looking to give them substantial new CAF and Mobility Fund support…without any reference to their earnings;” which is tantamount to corporate welfare.
Even though the FCC contends that Phase I Mobility Fund support is not intended to go to particular classes of carriers, the Blooston Rural Carriers argue that “The only way to effectively encourage high-quality expansion into unserved areas is to ensure that funding is directed to carriers that have a legitimate interest in building and maintaining high-quality services in those areas;” and rural carriers have a “vested interest” in doing just so. The Blooston Rural Carriers explain that small rural carriers have only been able to achieve mild success in regular spectrum auctions because of special provisions like bidding credits—“without such measures, small carriers would have had no realistic chance.”
There are no bidding credits or special provisions for small companies in the Mobility Fund—at least not in Phase I. The Blooston Rural Carriers warn that “participation in the Mobility Fund will significantly favor large, nationwide carriers whose capital and operating costs are significantly lower than small and rural service providers.” Furthermore, large carries may have opportunities to game the system though unreasonably low and anticompetitive bids, and determining winners based on costs alone might produce undesirable results. The Blooston Rural Carriers insist, “It is important to take into account more factors than simply which entity can claim to do the job for the least amount of money.”
As an alternative, the Blooston Rural Carriers recommend that the FCC “choose a method of distributing funds that takes into account an equitable comparison and evaluation of the differing costs and service characteristics of different technologies, rights of creditors and repayments of outstanding loans, and the treatment of carrier of last resort obligations, costs, as well as past performance and experience providing service in the kinds of areas that generally remain unserved.” In addition to bidding credits for small carriers, the Blooston Rural Carriers’ list of recommendations for improving the Mobility Fund for small rural carriers includes:
- Ensuring affordable roaming agreements for rural carriers who receive mobility support
- Facilitating greenfield projects and “economic ‘jump starts’” for RLEC spectrum holders interested in deploying new wireless systems in their service areas,
- Prohibiting competitively harmful exclusive equipment and handset arrangements
- Require 3G systems deployed with Mobility Fund support be easily upgradable to 4G
Finally, the Blooston Rural Carriers are concerned about the future direction of the Mobility Fund, since many of the finer details are still unclear and will be left to the Bureaus to determine: “The Commission’s reliance on undetermined further procedures provides little comfort for rural carriers who are routinely at a disadvantage to larger carriers.” The Blooston Rural Carriers hope that the FCC will finally notice and respond to some of the arguments mentioned in this petition—arguments that the Blooston Rural Carriers and other rural stakeholders have been delivering for over a year with little acknowledgement by an FCC determined to make reverse auctions work. However, there is a real threat that the efforts to make reverse auctions work will undermine the goals of the USF and misallocate the precious little funding that is available in the tight $4.5b budget.
The Blooston Rural Carriers recommend that the FCC, “on reconsideration, take real, concrete, active steps to ensure equal opportunity and competitive participation among all carriers.” What do you think the FCC should do to ensure small rural wireless carriers can actively participate in Phase I Mobility Fund reverse auctions?
The full Petition for Reconsideration is available here.