Rural Digital Opportunity Fund - PowerPoint Presentation

1. Rural Digital Opportunity FundApril 28, 2020 Webinar

2. Rural Digital Opportunity FundFederal Communications Commission reverse auction to receive a Universal Service Fund subsidy to provide broadband and voice service.Scheduled to begin October 22, 2020*Some auction rules are not finalized yet, and therefore some information presented here are rules under consideration, and rules used for a previous similar auction (CAF II – 2018)

3. A Multi-Round Reverse AuctionWith Weighted BidsMulti-round reverse auctionEach round the support amount offered is reduced by a percentageBidders upload a spreadsheet of census block groups as their bidBidding windows will be several hours long, a day or two apartMinimum geographic unit will be a census block group or a census tract, which will contain both subsidized and unsubsidized census blocksWinning bidders’ obligation is for homes passed, able to provide service within ten daysSubsidized providers must offer voice, even as a standalone serviceThe subsidy amount will be dispersed monthly for a ten-year termBidders assign a Performance Tier and Latency combination for each bid, creating a weighted bid

4. RDOF AuctionBudget$20.4 billion over ten years $16 billion in Round 1, targeted at wholly unserved census blocksThe remainder in Round 2 which will target partially served census blocks and areas not won during Round 1The auction aggregate reserve price will exceed the budgetIn CAF II the auction budget was $1.98 billion and the aggregate reserve price was about $6 billion. The auction closed at about $1.5 billion. Approx $30 Billion opening price for RDOF Round 1 based on initial eligible areas listApprox $800 Million total support for West Virginia as aggregate reserve price

5. RDOF Round 1 Eligible AreasEligible areas will primarily be whole census blocks lacking 25/3 service in Price Cap carrier High Cost territoriesDetermined using most recent publicly available FCC Form 477 dataRound 2 will include unserved locations in partially served census blocks and locations not won during Round 1

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7. Performance Tiers, Latency and WeightsPerformance TierSpeedMonthly Usage AllowanceWeightGigabit≥ 1 Gbps/500 Mbps≥ 2 TB 0Above Baseline≥ 100/20 Mbps≥ 2 TB 20Baseline≥ 50/5 Mbps≥ 250 GB or U.S. Median35Minimum≥ 25/3 Mbps≥ 250 GB or U.S. Median50LatencyRequirementWeightLow Latency≤ 100 ms0High Latency≤ 750 ms & MOS ≥ 440

8. Reverse AuctionThe BasicsThe auction uses a descending “base clock percentage” with the clock decreasing by a % each round to startThe clock percentage change could be between 5% and 20%The opening base clock percentage is set to allow the total aggregate reserve price to be available to the worst possible weighted bid, 100% of aggregate reserve price plus 90 points, or 190% (if there is a 90-weight applicant)The first bid will be to accept 180% of the reserve price, weighted, and so onThe auction will not “clear” until the aggregate amount bid goes below the auction budgetThe auction will not “close” until all competitive bidding is concluded

9. Auction Opening and First BidFirst bidding round is to accept 180% of the aggregate reserve pricePerformance TierWeight Weighted bidSupport amount if auction cleared after this round Gigabit0180 – 0 = 180100% of reserve priceAbove Baseline20180 – 20 = 160100% of reserve priceBaseline35180 – 35 = 145100% of reserve priceMinimum50180 – 50 = 130100% of reserve priceAbove Baseline High Latency60180 – 60 = 120100% of reserve priceBaseline High Latency75180 – 75 = 105100% of reserve priceMinimum High Latency90180 – 90 = 9090% of reserve price

10. Comparing BidsHypothetical example where the auction budget clears at 70%Performance TierWeight Weighted bidSupport amount if auction cleared at 70%Gigabit070 – 0 = 7070% of reserve priceAbove Baseline2070 – 20 = 5050% of reserve priceBaseline3570 – 35 = 3535% of reserve priceMinimum5070 – 50= 2020% of reserve priceAbove Baseline High Latency6070 – 60 = 1010% of reserve priceBaseline High Latency7570 – 75 = NA0% of reserve priceMinimum High Latency9070 – 90 = NA0% of reserve price

11. General EligibilityAuction open to ISPs and electric utilitiesCertify that it has as provided broadband or voice and/or electric distribution or transmission services for at least two yearsISPs that certify are expected to have filed FCC Form 477s for the past two yearsElectric utilities must submit two years operating or financial reports filed with the relevant financial institutionRUS or CUC Forms 7 or 12 (in CAF II)

12. General EligibilityThe Other PathIf an applicant cannot certify that it has provided voice, broadband, and or electric transmission or distribution services for at least two years, it must submit:Audited financial statements for the three most recent consecutive fiscal years, including balance sheets, and statements of net income, and cash flow, and A letter of interest from a qualified bank with terms acceptable to the Commission, stating that the bank would provide a letter of credit to the bidder if the bidder were selected for certain levels of support.

13. Pre-AuctionShort Form ApplicationSummer 2020Pre-auction short-form application process to establish eligibilityIdentify states and performance tiers for planned biddingType of Technologies Access to SpectrumApproval for specific performance tiers at this stageOwnership/AgreementsTechnical and Financial Qualifications CertificationOperational HistoryFinancial StatementsAudited Financial Statements – Past two yearsBalance SheetsIncome StatementsCash Flow StatementsIf no audited financial statements available, certify they will accompany long form application

14. Financial EligibilityCurrent ProposalAn applicant that submits audited financial statements, and has a clean opinion letter on those financial statements, would be deemed financially qualified to participate in the auction.Technical and operational wherewithal must also be demonstrated.

15. Financial EligibilityCurrent ProposalApplicants without a clean opinion letter on their audited financials, and any applicants that submit unaudited financial statements, would be subject to a review of the full set of financial statements submitted with the short-form application.FCC has not defined specific parameters for the review of an applicant that does not have a clean opinion letter on its audited financial statements or does not submit audited statements with their short form application.

16. Post-AuctionLong FormPost-auction long-form applicationAudited Financials (if not already provided)Description of technology and system designNetwork diagram stamped by PEFunding descriptionCertify that it will have available funds for all project costs that exceed the amount of Rural Digital Opportunity Fund support for the first two years

17. Post-AuctionLong FormEligible Telecommunications Carrier designationRequired to be eligible to receive money from the USFPetition state PSC to be designated a High Cost ETC for subsidized census blocksFCC requires High Cost ETCs offer Lifeline service for subsidized census blocks

18. Post-AuctionLong FormLetter of CreditWinning bidders must maintain a letter of credit until their buildout is verified completeAt the beginning of the first year of its support term, a support recipient must obtain a letter of credit equal to one year of the total support it will receive In year two, it will be required to obtain a letter of credit equal to eighteen months of its total support In year three, it will be required to obtain a letter of credit equal to two years of its total support And in year four, it will be required to obtain a letter of credit equal to three years of its total support

19. Post-AuctionLong FormLetter of CreditDeployment milestones are: 40% after three years 60% after four years80% after five years100% after six years based on FCC estimate of locations. Optional 20%, year two deployment milestone to reduce Letter of Credit

20. Post-AuctionLong FormLetter of CreditThe Letter of Credit can be reduced Support recipients are required to report their deployed locations (in the HUBB Portal) by March 1 following each support year.A support recipient can utilize an optional deployment milestone, 20% by the end of year two, to reduce its letter of credit requirements.Upon verification of the 20% buildout by USAC, the recipient will be allowed to reduce its letter of credit to an amount equal to only one year of total support. Once a support recipient reduces its letter of credit obligation to one year of total support, it will be able to maintain its letter of credit at that level for the remainder of the deployment term, as long as USAC verifies that the support recipient successfully and timely meets its remaining service milestones.

21. TimelineInitial Eligible Areas map and list released March 17, 2020Final Eligible Areas map and list expected in MayShort Form application window will be open “Summer 2020”Auction bidding starts October 22, 2020Auction may be several days to a few weeksAfter winning:Letter of credit commitment letter within 60 days Audited financials in 180 daysETC designation in 180 daysLetter of credit 10 days after authorization to receive support

22. What is a Bid?A request for support in a given area at a given performance tier and latency at a given percentageAn area consists of the eligible census blocks in a census block groupOnce a round has closed, a submitted bid obliges you to provide service if you are a winning bidder If you are a winning bidder, your support amount will be at least the amount you agreed to accept by bidding

23. Bidding ActivityRequire that you do not bid for more support than you did in the prior roundMeasured in implied support dollarsLimit the extent to which you can switch to bid on different areasProposed switching percentage is 10% of prior round’s implied support for bids made at base clock percentage

24. Budget ClearingThe budget clears when the total implied support (weighted support) for the bids after a bidding round, counting support for no more than one bid for a given area, is equal to or less than the budget. The auction system will begin assigning support in the clearing roundIf there are multiple bids at the base clock percentage for the same area when the auction clears, the system assigns the subsidy to the lowest weighted bidBidding will continue only for those area with two or more bidders of equally weighted bids

25. Auction CloseThe auction ends after the budget has cleared, and when there is no area with more than one bid at the clock percentage

26. Package BiddingIn addition to submitting bids for individual areas, a bidder can submit a package bid, a single bid for a group of census blocks Package must use a single performance tier A given area can only be included in one bid (for the area alone or in a package including the area) Packages may be partially assignedPackage bids are not “all-or-nothing” bidsPackage must be bid on at a single percentage (“minimum scale percentage”)

27. Package BiddingA package bid must include a “minimum scale percentage” or the minimum percentage of the package’s support you are willing to accept.Bidder-specified, capped at 75% (proposed)The bidder may be assigned support for only some of the areas in the package, as long as the total amount of weighted support for those areas is at least the minimum scale percentage of the total weighted support associated with the packageFor example, for a package bid that specifies a 75% minimum scale percentage:None of the areas will be assigned if the auction system cannot assign 75% or more of the total support for the package The partial package will be assigned if the auction system can assign 75% or more of the total package support The package will be fully assigned if all the areas in a package can be assigned

28. Proxy BiddingWould tell the auction system to submit a proxy bid in each round, down to a bidder-specified proxy percentageInstructions can apply to a single-area or a package Proxy bids are treated like manually submitted bidsA bidder can change its proxy instructions at any timeSafeguards against missing a bidding round

29. Bidding at an Intermediate PercentageIf support at 80% is enough but support at 70% is not enough, you can bid at 75% when asked if you want to bid 70%

30. Deployment Requirements Deployment obligations are 40% after three years, 60% after four years, 80% after five years and 100% after six years based on FCC estimate of locations. Optional 20% year two deployment milestone to reduce Letter of CreditIf there are more locations in a census block than the FCC estimate, you still must be able to provide service to 100% of locations within subsidized census blocks in year eightIf actual locations exceed estimated by 35% or more, carrier can seek additional support or reliefIf fewer than 65% the number of estimated locations, carrier’s support amount will be reduced pro rataIf there are fewer locations than estimated, carrier must notify the FCC by March 1st following the fifth year of deployment

31. Non Compliance Framework During Build-OutCompliance GapNon-Compliance MeasureTier 1: 5% to less than 15% of the required number of locationsQuarterly reporting in HUBB PortalTier 2: 15% to less than 25% of the required number of locationsQuarterly reporting + withhold 15% of monthly supportTier 3: 25% to less than 50% of the required number of locationsQuarterly reporting + withhold 25% of monthly supportTier 4: 50% or more of the required number of locationsQuarterly reporting + withhold 50% of monthly support for six months; after six months withhold 100% of monthly support and recover percentage of support equal to compliance gap plus 10% of support disbursed to date

32. Final Deployment Non-Compliance MeasuresIf FCC estimated # of locations or less:≥ 95% - 1.25 X average subsidy amount per location 90%-95% - 1.5 X average per location + 5% total 10 year subsidy<90% - 1.75 X average per location + 10% total 10 year subsidyIf more than FCC estimated # of locations:≥ 95% - average subsidy amount per location 90%-95% - 1.25 X average per location85%-90% - 1.5 X average per location + 5% total 10 year subsidy<85% - 1.75 X average per location + 10% total 10 year subsidy

33. Public Service RequirementsService available to every location in subsidized census blocks within ten days of requestOne service offering in the performance tier you bid in, priced no more than comparable benchmark pricingOffer interconnected voice with 911 and operator serviceOffer standalone voice priced no more than comparable benchmark pricingMust respond to E-Rate service requests in subsidized census blocksMust participate in Lifeline program in subsidized census blocksPerformance testing using white box or alternative solutionLocation reporting using geo coordinates and street addressProvide access to 8 hour and 24 hour battery back-up at point of sale

34. Comparable Benchmark PricingServiceUsageMax Monthly Charge25/3 Mbps≥ 250 GB$82.3250/5 Mbps≥ 250 GB$91.68100/20 Mbps≥ 2 TB $110.001000 Gbps/500 Mbps≥ 2 TB $160.76VoiceUnlimited local$54.76

35. USF ContributionsProviders of interconnected voice must contribute to the USF fundUSF fee for first quarter 2020 is 21.2%Applies to interstate and international callingCan use a safe harbor contribution rate of 64.9% of all voice revenueDe minimis providers who owe $10,000 or less don’t have to contribute, but still have to file annuallyThe annual filing determines the four additional regulatory fees interconnected voice providers must payITSP – Interstate Telecommunications Service Provider feeTRS – Telecommunications Relay Service feeNANP – North American Numbering Plan feeLNPA – Local Number Portability fee

36. Get PreparedPrepare for Short Form applicationConsider getting audited financials statements if you don’t have them alreadyTry to get a clean, unmodified opinion letter to accompany your audited financial statementsMake initial preparations to obtain a letter of creditYour letter of credit limitations may influence your project sizeIf you don’t offer voice, look into your options and the requirements to support the service

37. Logging In

38. Navigation Bar

39. Messages

40. Download Template

41. Enter Bids In Template

42. Upload Bids

43. Choose File and Upload Bids

44. Bids Uploaded

45. Verify Bids on My Bids Summary

46. Verify Bids on the Map

47. My Bids Map

48. Additional Details Box

49. Upload Bids

50. Bid template

51. Edit Bid Template

52. Download Bids Failed

53. Upload Errors File

54. My Results

55. My Results Map

56. My Results Map

57. Additional Info on Map

58. Selecting an Item

59. Item Detail

60. Zooming in on an Item

61. Selecting another Item on the Map

62. Aggregate Results

63. Aggregate Results Map

64. Item Status on Aggregate Results Map

65. Downloads

66. My Assignment Tab

67. My Results after Budget Cleared

68. My Results Map after Clearing

69. Choosing an Assigned Item on Map

70. Aggregate Results after Clearing

71. Aggregate Results Map after Clearing

72. Important Resourceswww.fcc.gov/auction/904List and map of eligible census blocksFCC webinar info May 5th at 4 pmAll new FCC releases

73. Rural Digital Opportunity Fund Reverse AuctionScheduled to begin October 22, 2020My contact info:Frederic Feit – Broadband Consultantffeit@tilsontech.com