Billion Dollar-Plus FCC CAF II Auction Begins

CAF II will provide $1.98 billion over 10 years
By John Eggerton ,

The FCC Tuesday (July 24) began auctioning billions in broadband buildout subsidies to cable operators and other competitors to the incumbent telcos.

The FCC gave incumbent telcos the first shot at its Connect America Fund (CAF) subsidies to deliver fixed broadband to rural communities. Now it is giving competitors a shot at those funds in round two (CAF II), though incumbents can jump back in as well.

Round one of the Connect America Fund Phase II Auction (auction 903) began at 10 a.m. Rounds are six hours, and bidding is currently every other business day, which means the next round will be July 26, then Monday, July 30. The FCC could shorten rounds and increase the frequency to goose the bidding, as it did with the broadcast incentive auction, which was also a reverse auction.

In fact, it will move to daily, six-hour rounds starting with that July 30 round.

Related: FCC Approves 220 Applicants for $1.98 Billion CAF II Auction

Ten price cap carriers got first crack at the subsidy money in 2015. What they left on the table is being offered to rural electric cooperatives, fixed wireless providers, cable companies, and satellite providers (the incumbent local exchange carriers who passed on it in 2015 can also bid).

Cox, Altice USA, Verizon, Frontier and Cingular have all been approved to bid. 

FCC chair Ajit Pai has encouraged participation by cable and satellite operators, rural co-ops, rural telcos and others.

Up to $2 billion in subsidies will be available over the next decade to deliver broadband to unserved rural areas as part of the FCC's ongoing transition of its advanced communications Universal Service Fund. 

Related: FCC Approves Final Pieces of CAF II Auction

"Through this first-of-its-kind multiround reverse auction, a wide variety of providers are competing for universal support funding to expand broadband deployment," Pai plans to tell Congress at a Hill hearing Wednesday (July 25). "The reverse auction mechanism will ensure that this money is distributed efficiently and that we get the most bang for our buck."

A reverse auction means the low bidder wins. What is being bid on is subsidies for providing service in census blocks in states where the price cap carriers declined the support, "extremely high-cost census blocks" excluding New York (see below), Alaska and the territories, and "certain other census blocks that were removed from the offer of model-based support." Winners will have to provide annual reports and build-out certifications. 

There is $198 million in annual support available (or $1.98 billion for 10 years). The Phase II budget was actually $2.15 billion, but the FCC early on set aside $170.4 million to dole out via a New York State broadband subsidy program. Winners will get their funds in monthly installments over those 10 years. Winners must provide "at least one broadband and voice service at rates that are reasonably comparable to the rates for similar service in urban areas.

They also must meet various targets, including: 40 percent of the required number of locations in a state by the end of third year of support; an additional 20 percent in each subsequent year; and 100 percent by the end of the sixth year of support.

The FCC granted New York state a waiver to use the CAF II subsidies for its own competitive New NY Broadband Program for providing broadband in unserved rural areas, subject to conditions to ensure "broad participation and oversight."

Click here to check out the qualified bidders.

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