[Federal Register Volume 85, Number 47 (Tuesday, March 10, 2020)]
[Rules and Regulations]
[Pages 13773-13802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03135]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos.19-126, 10-90; FCC 20-5; FRS 16498]


Rural Digital Opportunity Fund, Connect America Fund

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) adopts the framework for the Rural Digital Opportunity 
Fund. The Rural Digital Opportunity Fund builds on the Connect America 
Fund (CAF) Phase II auction, which allocated funds to deploy networks 
serving more than 700,000 unserved rural homes and businesses across 45 
states. The Rural Digital Opportunity Fund represents the Commission's 
single biggest step to close the digital divide and connect millions 
more rural homes and small businesses to high-speed broadband networks.

DATES: Effective April 9, 2020, except of Sec. Sec.  54.313(e), 
54.316(a)(8), (b)(5), (c)(1), 54.804 (a) through (c), and 54.806. The 
Commission will publish a document in the Federal Register announcing 
the effective date of those rules.

FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition 
Bureau, (202) 418-7400 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order (Order) in WC Docket Nos. 19-126, 10-90; FCC 20-5, adopted on 
January 30, 2020 and released on February 7, 2020. The full text of 
this document is available for public inspection during regular 
business hours in the FCC Reference Center, Room CY-A257, 445 12th 
Street SW, Washington, DC 20554 or at the following internet address: 
https://www.fcc.gov/document/fcc-launches-20-billion-rural-digital-opportunity-fund-0.

I. Introduction

    1. Bringing digital opportunity to Americans living on the wrong 
side of the digital divide continues to be the Federal Communication 
Commission's top priority. It is imperative that the Commission take 
prompt and expeditious action to deliver on its goal of connecting all 
Americans, no matter where they live and work. Without access to 
broadband, rural communities cannot connect to the digital economy and 
the opportunities for better education, employment, healthcare, and 
civic and social engagement it provides.
    2. In recent years, the Commission has made tremendous strides 
toward its goal of making broadband available to all Americans. But 
while the digital divide is closing, more work remains to be done. 
Therefore, in the Order, the Commission adopts the framework for the 
Rural Digital Opportunity Fund. It builds on the successful model from 
2018's CAF Phase II auction, which allocated $1.488 billion to deploy 
networks serving more than 700,000 unserved rural homes and businesses 
across 45 states. The Rural Digital Opportunity Fund represents the 
Commission's single biggest step to close the digital divide by 
providing up to $20.4 billion to connect millions more rural homes and 
small businesses to high-speed broadband networks. It will ensure that 
networks stand the test of time by prioritizing higher network speeds 
and lower latency, so that those benefitting from these networks will 
be able to use tomorrow's internet applications as well as today's.

II. Discussion

    3. To ensure continued and rapid deployment of broadband networks 
to unserved Americans, the Commission establishes the Rural Digital 
Opportunity Fund, which will commit up to $20.4 billion over the next 
decade to support up to gigabit speed broadband networks in rural 
America. The Commission opts to allocate this funding through a multi-
round, reverse, descending clock auction that favors faster services 
with lower latency and encourages intermodal competition in order to 
ensure that the greatest possible number of Americans will be connected 
to the best possible networks, all at a competitive cost. In light of 
the need to bring service both to consumers in areas wholly unserved by 
25/3 Mbps, as well as those living in areas partially served, the 
Commission will assign funding in two phases: Phase I will target those 
areas that current data confirm are wholly unserved; and, Phase II will 
target unserved locations within areas that data demonstrates are only 
partially served, as well as any areas not won in Phase I. By relying 
on a two-phase process, the Commission can move expeditiously to 
commence an auction in 2020 for those areas it already knows with 
certainty are currently unserved, while also ensuring that other areas 
are not left behind by holding a second auction once the Commission has 
identified any additional unserved locations through improvements to 
its broadband deployment data collection.
    4. The Rural Digital Opportunity Fund Phase I auction will make use 
of many of the rules that made the CAF Phase II auction a success, with 
some exceptions to account for the passage of time and other changed 
circumstances. Most importantly, in addition to the weighting of 
performance tiers and latency, the Commission will assign support in 
the auction's clearing round to the bidder with the lowest weight. 
After the auction, the Commission will require Phase I support 
recipients to offer the required voice and broadband service to all 
eligible homes and small businesses within the awarded areas, without 
regard to the number of locations identified by the Connect America 
Cost Model (CAM), and instead as determined subsequently by the 
Wireline Competition Bureau (the Bureau). This approach differs from 
that used in the CAF Phase II auction, which tied the deployment and 
service obligations to a specific number of locations within awarded 
areas but allowed the recipients to demonstrate that their obligations 
should be reduced (along with a corresponding reduction in support) 
where there were fewer locations than the CAM specified. As discussed 
in the following, the Commission will use its cost model and current 
data to establish initial service milestones and to monitor interim 
progress, but the Commission emphasizes that Phase I bidders will be 
competing for support amounts to offer service to all locations 
ultimately identified in an area, not just to the specific number of 
locations in that area identified prior to the auction, without 
adjusting awarded support amounts.
    5. The Commission adopts a term of support of 10 years for the 
Rural Digital Opportunity Fund. The Commission believes that the 
stability of a 10-year term of support was partially responsible for 
the robust participation that occurred in the CAF Phase II auction. The 
Commission expects that the same principles regarding encouraging long-
term investments and auction participation will also apply to the Rural 
Digital Opportunity Fund. Most commenters addressing this issue agree 
that a 10-year term of support will provide the certainty and stability 
needed to encourage broadband deployment in unserved and

[[Page 13774]]

underserved locations and attract participation from a wide variety of 
participants. Moreover, disbursing support over a 10-year term 
minimizes the impact on the contribution factor. The Commission does 
not agree that adopting a 10-year term risks funding unsustainable 
projects, as one commenter suggests, because it expects bidders to seek 
sufficient support to build and maintain their network without an 
expectation of ongoing support after the 10-year support term expires. 
Nor does the Commission agree that bidders proposing 25/3 Mbps 
deployments should be offered only a five-year term. First, given that 
bids will be weighted to prioritize faster services, the Commission 
expects bidders seeking support for the 25/3 Mbps tier will win support 
only in areas where higher speeds are not economical, and that a five-
year term may simply increase the amount sought in order to recover the 
same amount of costs in a shorter timeframe. The Commission also more 
generally finds no benefit to having multiple terms of support within 
the same program.
    6. The Commission adopts its proposal to establish a budget of 
$20.4 billion for the Rural Digital Opportunity Fund. The Commission 
also adopts its proposal to make available $16 billion for Phase I, and 
to make available for Phase II a budget based on the remaining $4.4 
billion, along with any unawarded funds from Phase I. The Commission 
sought comment on whether it should reassess the adequacy of the budget 
after the Phase I auction. Although commenters generally supported the 
proposed budget, several commenters suggested that the size of the 
budget may be insufficient to serve all the unserved locations and 
supported reassessing the adequacy of the budget after Phase I. The 
Commission expects $16 billion to be sufficient, given the areas 
eligible for Phase I, to balance its objectives of encouraging robust 
competition for support below the reserve price and closing the digital 
divide. The Commission agrees that it may be appropriate after the 
Phase I auction, when it knows the areas eligible for Phase II and how 
many unserved locations will be eligible for Phase II within those 
areas, to reassess the total amount of funds available for Phase II and 
expect to revisit this issue at that time.
    7. The Rural Digital Opportunity Fund will target support to areas 
that lack access to both fixed voice and 25/3 Mbps broadband services 
in two stages. For Phase I, the Commission targets census blocks that 
are wholly unserved with broadband at speeds of 25/3 Mbps. For Phase 
II, the Commission targets census blocks that it later determined 
through the Digital Opportunity Data Collection, or suitable 
alternative data source, are only partially served, as well as census 
blocks unawarded in the Phase I auction. Because the Commission will 
have an additional opportunity to seek comment on how best to target 
Phase II support as it gathers more granular data on where broadband 
has been actually deployed, the Commission focused here on the areas 
eligible for Phase I of the auction.
    8. A number of commenters support moving forward to the extent the 
Commission can identify unserved areas using existing data. The 
Commission agrees. The Commission currently has the tools and the data 
to identify census blocks that are wholly unserved, and directs the 
Bureau to use the CAM with updated coverage data using the most recent 
publicly available FCC Form 477 data to identify census blocks that are 
unserved with broadband at speeds of at least 25/3 Mbps for the 
auction. The FCC Form 477 data have been criticized for identifying 
partially served blocks as ``served,'' but the Commission is not aware 
of cases in which the data has identified as ``unserved'' a census 
block that is in fact served.
    9. The Commission disagrees with commenters who argue that it 
should delay the auction until it has more granular data. The primary 
shortcomings of FCC Form 477 data do not come into play under the two-
phased framework the Commission adopts here. Thus, the Commission sees 
no value in denying the benefits of broadband to those rural Americans 
it knows lacks service because there may be other unserved Americans 
living in other areas that it has not yet identified. Waiting for the 
availability of more granular data before moving forward would only 
further disadvantage those millions of Americans that the Commission 
knows does not currently have access to digital opportunity.
    10. The Commission directs the Bureau to compile a preliminary list 
of eligible areas for Phase I of the Rural Digital Opportunity Fund 
auction using the following methodology. First, the Commission will 
include: (1) The census blocks for which price cap carriers currently 
receive CAF Phase II model-based support; (2) any census blocks that 
were eligible for, but did not receive, winning bids in the CAF Phase 
II auction; (3) any census blocks where a CAF Phase II auction winning 
bidder has defaulted; (4) the census blocks excluded from the offers of 
model-based support and the CAF Phase II auction because they were 
served with voice and broadband of at least 10/1 Mbps; (5) census 
blocks served by both price cap carriers and rate-of-return carriers to 
the extent that the census block is in the price cap carrier's 
territory, using the most recent study area boundary data filed by the 
rate-of-return carriers to identify their service areas and determine 
the portion of each census block that is outside this service area; (6) 
any unserved census blocks that are outside of price cap carriers' 
service areas where there is no certified high-cost eligible 
telecommunications carrier (ETC) providing service, such as the 
Hawaiian Homelands, and any other populated areas unserved by either a 
rate-of-return or price cap carrier; and (7) any census blocks 
identified by rate-of-return carriers in their service areas as ones 
where they do not expect to extend broadband (as the Commission did 
with the CAF Phase II auction). Not included in these categories for 
Phase I eligibility are census blocks where a winning bidder in the CAF 
Phase II auction is obligated to deploy broadband service, and census 
blocks where a Rural Broadband Experiment support recipient is 
obligated to offer at least 25/5 Mbps service over networks capable of 
delivering 100/25 Mbps.
    11. Second, the Commission will exclude those census blocks where a 
terrestrial provider offers voice and 25/3 Mbps broadband service 
according to the most recent publicly available FCC Form 477 data. In 
addition, the Commission will exclude those census blocks which have 
been identified as having been awarded funding through the U.S. 
Department of Agriculture's ReConnect Program, or awarded funding 
through other similar federal or state broadband subsidy programs to 
provide 25/3 Mbps or better service. This is consistent with the 
Commission's overarching goal of ensuring that finite universal service 
support is awarded in an efficient and cost-effective manner and does 
not go toward overbuilding areas that already have service. Although 
the Commission sought comment on whether there are any other areas that 
it should include in the initial list of eligible areas, such as areas 
in legacy rate-of-return areas that are almost entirely overlapped by 
an unsubsidized competitor, it declines to expand the list of eligible 
areas at this time and instead focus Phase I on the known wholly 
unserved census blocks.
    12. After compiling the preliminary list of eligible areas, the 
Bureau will conduct a limited challenge process for the Rural Digital 
Opportunity Fund Phase I auction consistent with the

[[Page 13775]]

process the Bureau used for the CAF Phase II auction. Because there is 
an inevitable lag between the time when areas are served and the time 
that service is reflected in publicly available FCC Form 477 data, 
parties will be given an opportunity to identify areas that have 
subsequently become served, and the Bureau will have the opportunity to 
compare the preliminary list of eligible areas with the final list to 
identify any obvious reporting errors. As discussed in this document, 
good policy requires the Commission to avoid making limited federal 
funding available in areas where broadband providers already are 
receiving support to deploy 25/3 Mbps broadband service. Thus, in order 
to identify which areas to exclude, the Commission directs the Bureau 
to provide an opportunity to identify census blocks that have been 
awarded support by a federal or state broadband subsidy program to 
provide 25/3 Mbps or better service. The Commission does this to ensure 
that its auction does not award duplicative or unnecessary support. The 
Commission does not agree with commenters who argue that a limited 
challenge process is insufficient and that it should provide a 
``robust'' challenge process to identify census blocks that are not 
actually served, and thus should be eligible for Phase I. The 
Commission finds that such a challenge process would be 
administratively burdensome, time-consuming, and unnecessary. In a 
previous challenge process, the Commission found that it was very 
difficult to prove a negative--that is, that an area was not served. 
The Commission also notes that in Phase II, any areas that are reported 
as served based on its current data but are ultimately deemed unserved 
will be eligible, and expect that Phase II will occur sooner if Phase I 
is not delayed by a more burdensome challenge process. The Commission 
directs the Bureau to release a list and map of initially eligible 
census blocks based on the most recent publicly available FCC Form 477 
data. If more recent FCC Form 477 data is available when the Commission 
adopts the specific procedures for the Phase I auction, the Bureau 
should use the more recent data and publish a final list.
    13. CAF Phase II support was targeted to ``census blocks where the 
cost of service is likely to be higher than can be supported through 
reasonable end-user rates alone'' by using a cost benchmark that 
reflected the expected amount of revenue that could reasonably be 
recovered from end users. In the CAF Phase II auction, the Commission 
included high-cost areas where the CAM estimated the cost per location 
to exceed $52.50 per month. The Commission departs from that decision 
here in the Rural Digital Opportunity Fund auction and it will also 
include some census blocks where the CAM suggests the costs of 
deployment are below that $52.50 high-cost threshold, but deployment 
has nonetheless not yet occurred. When the Commission proposed 
including at least some low-cost blocks, then-current data indicated 
that 6.3 million locations with costs below a $52.50 per month 
benchmark still lacked 25/3 Mbps broadband (including 3.4 million 
locations that lacked even 10/1 Mbps broadband based on staff analysis 
of current FCC Form 477 data), suggesting that potential end-user 
revenue alone had not incentivized deployment despite the model's 
predictions. Therefore, to encourage deployment of high-speed broadband 
in rural census blocks that are wholly unserved, the Commission will 
use a lower funding threshold to include blocks where the CAM estimates 
the cost per location equals or exceeds $40 per month, rather than 
$52.50. Although some commenters do not agree with providing support in 
such lower cost areas, the Commission finds that a modest reduction in 
the funding threshold is warranted given the number of census blocks 
where market forces alone have been insufficient to bring broadband to 
these areas.
    14. To account for the unique challenges of deploying broadband to 
rural Tribal communities, the Commission will use a funding threshold 
of $30 per month. This approach is consistent with the Tribal Broadband 
Factor established for Tribal areas for carriers that elected model-
based rate-of-return support, which used a 25% decrease compared to the 
$52.50 benchmark. Because the Commission will use a $40 benchmark for 
the Phase I auction, the $30 benchmark for Tribal areas reflects a 25% 
decrease compared to the $40 funding threshold. Using a $30 funding 
threshold for census blocks in Tribal areas, in addition to including 
blocks below the $40 threshold, has the effect of increasing the 
reserve price in all Tribal areas by $10 per location. Finally, to 
provide additional incentives in wholly unserved areas that even lack 
10/1 Mbps, the Commission will also use a $30 per month funding 
threshold in these areas. A number of commenters agree that the 
Commission should prioritize these areas, and it finds that an 
increased reserve price could encourage deployment in areas where rural 
consumers have been left behind.
    15. Consistent with the approach the Commission took in the CAF 
Phase II auction, it adopts a general auction framework and eligibility 
criteria in the Order and leaves the specific procedures to be 
established as part of the pre-auction process, including determining 
auction-related timing and dates, identifying areas eligible for 
support, and establishing detailed bidding procedures consistent with 
the Order.
    16. Auction Framework. For Phase I, the Commission adopts a single 
nationwide, multi-round reverse auction with competition within and 
across eligible geographic areas to identify areas that will receive 
support and determine support amounts, as it did for the CAF Phase II 
auction. The Commission's experience in the CAF II auction demonstrates 
that reverse auctions allow for market forces to maximize the impact of 
finite universal service resources while awarding support to those 
providers that will make the most efficient use of the budgeted funds. 
Utilizing an auction mechanism will allow the Commission to distribute 
support consistent with its policy goals and priorities in a 
transparent manner. An auction provides a straightforward means of 
identifying those providers that are willing to provide voice and 
broadband at a competitive cost to the Fund, targeting support to 
prioritized areas, and determining support levels that awardees are 
willing to accept in exchange for the obligations the Commission 
imposes. Moreover, a reverse auction is consistent with the 
Commission's decision to provide support to at most one provider per 
area.
    17. Commenters broadly support the use of a reverse auction to 
distribute Rural Digital Opportunity Fund support. For example, 
commenters state that based on the success of the CAF Phase II auction, 
reverse auctions can be expected to produce robust deployment cost-
effectively. The Nebraska Public Service Commission, on the other hand, 
raised concerns that a reverse auction focuses on ``the cheapest way to 
get to the minimum speed of a given speed tier to a coverage area'' 
rather than ``focusing on robust and scalable technology.'' The 
Commission disagrees. As demonstrated in CAF Phase II, reverse auctions 
are the best available tool to achieve the Commission's overall goal of 
closing the digital divide in a transparent and efficient manner while 
maintaining fiscal responsibility and cost-

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effectiveness. Moreover, in most instances, CAF Phase II winning 
bidders agreed to provide a higher speed than the minimum; thus, the 
Commission was able to push finite universal service support to many 
more locations at a much lower cost and higher speeds. The Commission 
therefore maintains that a reverse auction is the most efficient means 
of awarding Rural Digital Opportunity Fund support, consistent with its 
goal of supporting the buildout of the best possible networks in the 
most cost-effective manner possible.
    18. Similar to the CAF Phase II auction, the Commission adopts an 
auction design in which bidders committing to different performance 
levels will have their bids weighted to reflect its preference for 
higher speeds, greater usage allowances, and lower latency. However, in 
addition to the weights for each performance tier and latency 
combination adopted in the following, the Commission adopts bid 
processing procedures specific to the ``clearing round'' of the Rural 
Digital Opportunity Fund Phase I auction. In the clearing round, the 
bidding system will take into account the combined performance tier and 
latency weight when assigning support to bidders competing for support 
in the same area at the base clock percentage. Among other 
modifications to the procedures used in the CAF II auction, the bidding 
system will assign support in the clearing round to the bidder with the 
lowest performance tier and latency weight instead of, as was done in 
the CAF II auction, carrying forward all bids at the base clock 
percentage for the same area for bidding in additional clock rounds. If 
two or more bids were submitted with the same lowest performance tier 
and latency weight in the clearing round, bidding for an area will 
continue in additional clock rounds.
    19. In the CAF II auction, the Commission adopted an auction that 
considered all bids simultaneously, ``so that bidders that propose to 
meet one set of performance standards will be directly competing 
against bidders that propose to meet other performance standards.'' In 
the Rural Digital Opportunity Fund auction, the Commission will 
continue to accept bids committing to different performance levels. In 
Phase I, however, once the budget has cleared, the Commission will 
prioritize bids with lower tier and latency weights, thereby 
encouraging the deployment of networks that will be sustainable even as 
new advancements are made and which will be capable of delivering the 
best level of broadband access for many years to come, all while 
keeping funding within the Phase I budget. Although this approach could 
result in less intra-area competition after the clearing round in some 
areas, the auction will have selected the best possible service, at a 
competitive level of support, for the same number of consumers living 
in those areas, and this will result in more rapid and efficient 
funding for such deployment. In other words, the Commission's goal to 
close the digital divide is balanced against its goal to support the 
deployment of future-proof networks by this auction. Overall, the 
Commission does not expect this approach to adversely impact 
competition. The Commission will still accept competitive bids 
proposing to offer performance that meets or exceeds the minimums at 
each performance tier and latency, but for those areas where there is 
still competition as of the clearing round, the Commission will 
prioritize selection of bidders that propose to offer the highest 
speeds, most usage, and lowest latency for each area.
    20. The Commission also adopts the same general competitive bidding 
rules, which allow for the subsequent determination of additional, 
specific final auction procedures based on additional public input 
during the pre-auction process, and the Commission will apply as 
appropriate any modifications to those rules that it may adopt. Those 
competitive bidding rules, together with the additional rules the 
Commission adopts in this document, will establish Rural Digital 
Opportunity Fund winning bidders' performance obligations, eligible 
areas, and post-auction obligations and oversight. As it typically does 
for Commission auctions, the Commission will seek further comment on 
auction procedures at a future date, so it does not address the 
comments in the Order that speak to those issues. A number of 
commenters propose specific changes to the auction that would be better 
evaluated during the process to develop detailed auction procedures.
    21. Reserve Prices. Consistent with the CAF Phase II auction 
procedures, the Commission will use the CAM to establish area-specific 
reserve prices. The Commission makes several adjustments to its 
approach in the CAF II auction to include some unserved areas that were 
excluded from the CAF Phase II auction and to potentially provide 
additional funding to extremely high-cost areas. Specifically, the 
Commission concludes it is appropriate to reduce the high-cost support 
threshold to $40 per location. The Commission also increases the per-
location support cap to $212.50. This approach will add additional 
locations above the new threshold and increase inter-area bidding. 
Finally, the Commission will prioritize areas entirely lacking 10/1 
Mbps and Tribal areas by further lowering the funding threshold for 
such areas by 25% to $30.
    22. The reserve price in each wholly-unserved, eligible census 
block will be equal to the average per-location cost of deploying and 
operating a network (as calculated by the CAM) above the $40 support 
threshold and up to the per-location support cap of $212.50, multiplied 
by the number of locations in the block. Lowering the support threshold 
from $52.50 to $40 per locations will provide support to unserved areas 
in which the CAM may be understating costs, while still being cognizant 
about not offering support in areas market forces alone are likely to 
extend broadband. The Commission previously determined that a CAM-
calculated average per-location cost of $52.50 reflected an appropriate 
line between areas requiring support and those where market forces 
would be sufficient. Where some areas have not yet seen unsubsidized 
deployment of broadband networks, it could be an indication that the 
assumptions underlying the CAM do not always reflect the reality facing 
service providers, and the Commission now concludes it is appropriate 
to revisit the high-cost threshold. Likewise, the Commission increases 
the per-location support cap to ensure that the highest-cost areas, 
many of which did not receive winning bids in the CAF II auction, will 
see sufficient interest from bidders in the Rural Digital Opportunity 
Fund. Thus, the Commission will set the reserve price based on a lower 
support threshold of $40 for all areas and raise the per-location 
support cap from $146.10 to $212.50, ultimately helping promote 
participation and competition in the Rural Digital Opportunity Fund 
Phase I auction.
    23. The Commission's goal with this auction is to target support 
and provide incentives to serve areas that are known to currently lack 
service at speeds of at least 25/3 Mbps. Whereas the CAF Phase II 
auction targeted support to high-cost areas where the incumbent price 
cap carrier declined the offer of model-based support and extremely 
high-cost areas nationwide, here the Commission expands its focus to 
include certain areas that remain unserved despite being identified by 
the CAM as lower cost. As the Commission stated in the Rural Digital 
Opportunity Fund NPRM, 84 FR 43543, August 21, 2019, the new lower 
support threshold

[[Page 13777]]

of $40 will ensure that only census blocks above the new support 
threshold will be eligible for the auction. Buckeye Hills Regional 
Council asserts that the Commission should lower the cost threshold to 
$20 or $30 for difficult to serve parts of the country such as 
Appalachia. However, lowering the threshold any further than $40 would 
provide more support than needed and many locations could be included 
that are more likely to be served without universal service support.
    24. Certain commenters oppose including unserved low-cost census 
blocks in Phase I of the auction, raising concerns that the auction 
would shift funding to more densely populated areas at the expense of 
more rural consumers and census blocks. The Commission notes that these 
areas remain unserved, despite being identified as low cost by CAM more 
than five years ago. Moreover, the Commission is lowering the support 
threshold in all eligible census blocks, thereby increasing reserve 
prices (and potentially available support) throughout. The Commission 
declines to adopt NCTA's proposal to reduce the cost threshold only to 
account for the costs of upgrading an already deployed network capable 
of providing 10/1 Mbps to one capable of providing 25/3 Mbps,'' to 
``ensure the . . . fund does not . . . pay more than necessary to serve 
these areas.'' The Commission disagrees. NCTA's approach focuses on 
areas that already have 10/1 Mbps but not 25/3 Mbps and presumes that 
the existing provider would be the auction winner. While an existing 
provider should in many cases be able to seek less support from the 
auction in order to upgrade existing facilities, it may ultimately be 
more efficient for a new provider to serve that same biddable unit with 
new facilities, in addition to serving neighboring areas that lack 10/1 
Mbps broadband services.
    25. The Commission also adopts its proposal in the Rural Digital 
Opportunity Fund NPRM to prioritize census blocks that lack 10/1 Mbps 
over eligible census blocks that have 10/1 Mbps service, but lack 
service at 25/3 Mbps based on Form 477 data. Specifically, the 
Commission accomplishes this by reducing the support threshold for such 
census blocks by an additional 25% to $30, which will have the effect 
of raising the support cap for these blocks to $222.50. Some commenters 
support prioritizing areas that lack 10/1 Mbps and some suggest the 
reserve prices in such areas should be increased to incentivize bidders 
in those areas. USTelecom opposes focusing first on areas that lack 10/
1 Mbps stating that it would be difficult to implement ``absent 
mapping'' and due to ongoing CAF Phase II deployment. Pacific Dataport 
objects to a 10/1 Mbps prioritization and argues it is a ``desperate 
attempt to force-fit a terrestrial solution whether or not the 
economics make sense.'' The Commission disagrees with both commenters. 
As stated in this document, the Commission has the data to identify 
census blocks that are wholly unserved by broadband speeds of at least 
10/1 Mbps and are not aware of cases where Form 477 data have 
identified as ``unserved'' a census block that is in fact served. One 
of the Commission's goals in this proceeding is to provide incentives 
to serve locations that lack any terrestrial option. Prioritizing areas 
that lack 10/1 entirely is consistent with the Commission's statutory 
mandate that such services are deployed to areas lacking broadband and 
makes sure this auction does not leave on the wrong side of the digital 
divide those areas lacking even basic broadband access.
    26. For Tribal areas, the Commission similarly adopts the Tribal 
Broadband Factor as a 25% decrease, to $30, of the support threshold 
applied to Tribal areas. More specifically, with regard to census 
blocks located within the geographic area defined by the boundaries of 
the Tribal land, all eligible census blocks for which the CAM-derived 
cost is more than $30 will be included in the auction, and the reserve 
price for such blocks will be the CAM-derived cost minus $30, up to a 
per-location support cap of $222.50. The Commission recognizes the 
difficulty Tribal lands have faced in obtaining broadband deployment, 
and by incorporating this Tribal Broadband Factor, the Commission seeks 
to incentivize network buildout to ensure that Tribal Nations and their 
members obtain access to advanced communications services. The record 
before the Commission provides ample support for adopting a 25% 
decrease of the cost benchmark to incentivize Rural Digital Opportunity 
Fund participants to bid on and serve rural Tribal census blocks. A 
Tribal Broadband Factor will attach to the eligible Tribal areas, and 
thus reflect the additional cost of serving Tribal lands. While the 
Commission remains committed to promoting deployment on Tribal lands, 
it declines to extend a Tribal-specific preference to Tribal entities 
or to require a nontribal entity to ``prove an established 
partnership'' prior to the auction. The Commission concludes that it 
serves the public interest to maximize participation, and to award 
support to the most cost-effective bids, subject to the performance and 
latency weights it adopts in the following.
    27. Bidding Credits. The Commission declines to adopt bidding 
credits for offsetting bidding weights or committing to certain 
buildout requirements, as proposed by some bidders. Adopting bidding 
credits to reward bidders for simply having met prior regulatory 
obligations, for example, would be contrary to the competitive nature 
of the auction, and, could ultimately reduce the potential reach of the 
Rural Digital Opportunity Fund. While the Commission declines to adopt 
a Tribal bidding credit, in this document, it has incorporated into the 
reserve prices for Tribal lands a Tribal Broadband Factor, similar to 
what the Commission previously incorporated into the recent offer of 
model-based support to rate-of-return carriers serving Tribal lands, 
which will reflect the higher costs unique to deploying service on 
Tribal lands that may not otherwise already be included in the CAM, and 
satisfy the Commission's goal of bridging the digital divide.
    28. Minimum Geographic Area for Bidding. The Commission concludes 
that the minimum geographic area for bidding will be no smaller than a 
census block group, as identified by the U.S. Census Bureau, containing 
one or more eligible census blocks. As the Commission determined in the 
CAF Phase II Procedures PN, using census block groups ensures that all 
interested bidders, including small entities, have flexibility to 
design a network that matches their business model and the technologies 
they intend to use. Nevertheless, as the Commission did in the CAF 
Phase II auction, it reserves the right to select census tracts, or 
other groupings of areas, when it finalizes the auction design if 
necessary to limit the number of discrete biddable units. While some 
commenters support bidding based on eligible census blocks, the 
Commission declines to adopt individual census blocks as the minimum 
geographic area for bidding because of the significantly larger number 
of eligible census blocks, increasing the complexity of the bidding 
process both for bidders and the bidding system and minimizing the 
potential for broad coverage by winning bidders. Furthermore, using 
census blocks as the minimum geographic area could create more 
challenges for providers in putting together a bidding strategy that 
aligns with their intended network construction or expansion.
    29. The Commission adopts technology-neutral standards for voice

[[Page 13778]]

and broadband services supported by the Rural Digital Opportunity Fund, 
based on its experience in the CAF Phase II auction and its success in 
awarding support to a variety of service providers to deploy broadband 
in unserved rural areas, and consistent with long-standing Commission 
policy. Specifically, the Commission will permit bids in four 
performance tiers, and for each tier will differentiate between bids 
that would offer either low- or high-latency service. The Minimum 
performance tier means 25/3 Mbps with a usage allowance that is the 
greater of 250 GB per month or the average usage of a majority of fixed 
broadband customers as announced by the Bureau on an annual basis; the 
Baseline performance tier means 50/5 Mbps speeds with a 250 GB monthly 
usage allowance or a monthly usage allowance that reflects the average 
usage of a majority of fixed broadband customers as announced by the 
Bureau on an annual basis, whichever is higher; the Above-Baseline 
performance tier means 100/20 Mbps speeds with 2 TB of monthly usage; 
and the Gigabit performance tier means 1 Gbps/500 Mbps speeds with a 2 
TB monthly usage allowance. The Commission adopts 250 GB as the minimum 
monthly usage allowance for the Baseline performance tier rather than 
the 150 GB as proposed because based on Measuring Broadband America 
October 2018-September 2019 usage data, the average monthly usage for 
fixed broadband customers is 251.45 GBs per month.
    30. Low- or high-latency bids will be required to meet the same 
latency requirements as the CAF Phase II auction high- and low-latency 
bidders. Low latency means 95% or more of all peak period measurements 
of network round trip latency are at or below 100 milliseconds, and 
high latency means 95% or more of all peak period measurements of 
network round trip latency are at or below 750 milliseconds and a 
demonstration of a score of 4 or higher using the Mean Opinion Score 
with respect to voice performance.
    31. The Commission maintains a Minimum performance tier for the 
Rural Digital Opportunity Fund but increase the speed from 10/1 Mbps to 
25/3 Mbps. In the CAF Phase II auction, winning bids in a Minimum 
performance tier, which required only 10/1 Mbps broadband, covered less 
than 1% of locations awarded support. The record generally supports 
eliminating the 10/1 Mbps performance tier. Although the Navajo Nation 
and the Navajo Nation Telecommunications Regulatory Commission (NNTRC) 
request that the Commission establish a 10/1 Mbps bidding tier for 
Indian Country because costs of deploying 25/3 Mbps on reservations may 
discourage bidders, they provided no specific, detailed information 
about differences in cost. Moreover, allowing another performance tier 
only in certain areas would complicate the bidding system and the 
Commission believes the Tribal Broadband Factor will be sufficient to 
increase support on Tribal lands and incent providers to bid on Tribal 
lands.
    32. Some commenters argue that a Baseline tier of 25/3 Mbps is too 
low and the Commission should establish a higher speed tier as the 
minimum eligible for the auction, or that bidders proposing 25/3 Mbps 
should be required to deploy to all locations in three years and 
receive only five years of support. Although the Commission has a 
preference for higher speeds, it recognizes that some sparsely 
populated areas of the country are extremely costly to serve and 
providers offering only 25/3 Mbps may be the only viable alternative in 
the near term. Accordingly, the Commission declines to raise the 
required speeds in the Minimum tier and it is not persuaded that 
bidders proposing 25/3 Mbps should be required to build out more 
quickly or have their support term reduced by half.
    33. Several others argue that the Commission should include a 
fourth performance tier between the Minimum and Gigabit tiers, some 
suggesting a tier between 25/3 Mbps and 100/20 Mbps, and others 
suggesting a tier between 100/20 Mbps and the Gigabit tier. The 
Commission agrees, and accordingly, add an additional performance tier. 
The Commission finds that allowing bidders to offer 50/5 Mbps service 
is ``critical to reaching the truly high-cost areas in a cost effective 
way'' while meeting the ``immediate broadband needs'' of consumers 
today. Adding a performance tier at 50/5 Mbps furthers the Commission's 
goal of incentivizing providers to deploy networks that will deliver 
services that consumers need today as well as in the future, but also 
ensures Minimum speed service will be available in the hardest to serve 
areas.
    34. The Commission declines to make any modifications to its two 
latency tiers. Some commenters propose a third, very low-latency tier. 
Commenters have provided no persuasive evidence that suggests 
technologies meeting latency standards below 100 milliseconds would 
have such a material benefit for consumers when compared to services 
meeting the Commission's existing long-standing low-latency 
requirements that it should potentially divert support to those lower-
latency technologies and would not expect consumers to notice the lower 
latency that would make it worth weighting the auction differently. The 
Commission notes that providers are encouraged to offer service that 
improves upon the Commission's minimum tier thresholds.
    35. Satellite providers argue that the Commission's existing 
latency tiers do not account for certain satellites capable of 
providing lower latency, and that the high-latency weight discourages 
hybrid networks. SES Americom, which offers middle-mile capacity on its 
satellites to telecommunications carriers, argues its medium earth 
orbit satellites can provide broadband service with a latency between 
120 milliseconds and 150 milliseconds. Viasat and Hughes ask that the 
Commission permits a provider to qualify at the low-latency weight if 
it demonstrates a mean opinion score of 4 or more for VoIP service and 
routes latency-sensitive traffic over links in which 95% or more of all 
peak period measurements of network round trip latency are at or below 
100 milliseconds. Although medium earth orbit satellites and hybrid 
satellite technologies have the potential to deliver high-speed 
broadband to previously unserved rural areas, these technologies have 
not been deployed widely to deliver service to residential consumers; 
therefore, it would be premature to modify the Commission's latency 
standards based on the record to qualify these technologies in the 
Phase I auction to bid with a lower-latency weight, or add an 
additional interim latency weight. This decision does not preclude the 
Commission from reconsidering the feasibility of modifying latency 
standards to accommodate medium earth orbit satellite and hybrid 
satellite technologies for Phase II of the Rural Digital Opportunity 
Fund.
    36. As in the CAF Phase II auction, the Commission adopts weights 
that reflect its preference for higher speeds, higher usage allowances, 
and low latency. The Commission also anticipates that terrestrial fixed 
networks will likely result in significant fiber deployment that can 
serve as a backhaul for rural 5G networks. Accordingly, the Commission 
chooses performance tier and latency weights to encourage the 
deployment of higher speed, low-latency services. Specifically, the 
Commission adopts weights of 50 for the Minimum performance tier, 35 
for the Baseline performance tier, 20 for the Above Baseline 
performance tier, and 0 for the Gigabit performance tier, as well as a 
weight of 40 for high-latency bids and 0 for low-latency bids to favor 
higher-

[[Page 13779]]

than Baseline speeds and low-latency services. Under the descending 
clock auction format the Commission will use the weights, when 
subtracted from the clock percentage for the round, to indicate the 
percentage of an area's reserve price that a winning bidder would 
receive in per-location support for serving the locations in that area.
    37. The following charts summarize the Commission's approach:

                                     Performance Tiers, Latency, and Weights
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Minimum..................................  >=25/3 Mbps.................  >=250 GB or U.S. average,            50
                                                                          whichever is higher.
Baseline.................................  >=50/5 Mbps.................  >=250 GB or U.S. average,            35
                                                                          whichever is higher.
Above Baseline...........................  >=100/20 Mbps...............  >=2 TB......................         20
Gigabit..................................  >=1 Gbps/500 Mbps...........  >=2 TB......................          0
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
 
------------------------------------------------------------------------
Low Latency...........................  <=100 ms                       0
High Latency..........................  <=750 ms & MOS >=4            40
------------------------------------------------------------------------

    38. The Commission declines to modify the 90-point maximum spread 
between the tiers that the Commission used in the CAF II auction. Many 
commenters argued that the Commission should increase the 90-point 
spread between the highest and lowest tiers to favor higher speeds even 
more. Others argue that the Commission should narrow the weighting 
spread. Although the Commission does value higher speed services, it 
also recognizes that different technologies may be better suited for 
different areas. Based on the Commission's experience with the CAF 
Phase II auction and its weights, the Commission believes the weights 
it adopts will provide an opportunity for providers using various 
technologies to participate in the auction and to compete for 
appropriate levels of support while providing a minimum level of 
service to consumers in all awarded areas.
    39. The Commission adopts its proposal to establish a weight of 40 
points as the weight for high-latency services, which is an increase 
from the CAF Phase II weight of 25. Satellite providers oppose 
increasing the weight for high latency. Viasat claims that 
substantially increasing the latency weight would effectively preclude 
meaningful participation by geostationary orbit (GSO) satellite 
providers in the auction and would give Viasat and other GSO satellite 
providers virtually no chance of participating successfully. Moreover, 
Viasat argues that increasing the latency weight would significantly 
reduce the number of supported locations, leaving behind areas where no 
terrestrial provider bids, and substantially increase the average per-
location subsidies in areas where terrestrial providers do bid. On the 
other side, several commenters argue the Commission should assign an 
even greater weight to high-latency bids. USTelecom argues that 
satellite broadband service is not a bridge to next-generation 5G 
broadband services and suggests that the Commission exclude satellite 
from bidding in the Phase I auction, or at a minimum, increase the 
high-latency weighting to 60. The Commission's decision to introduce a 
more moderate increase to the high-latency weight reflects the 
importance of latency to interactive, real-time applications and voice 
services, as well as the secondary benefits of terrestrial facilities, 
but also recognizes the importance of allowing all technologies the 
ability to participate in the auction and offer service to unserved 
areas. Moreover, adopting a fourth performance tier will moderate some 
of the effects of the Rural Digital Opportunity Fund NPRM's proposed 
weights. The 90-point spread the Commission adopts in this document 
will allow high-latency bidders to compete for appropriate levels of 
support in a much larger auction.
    40. All Rural Digital Opportunity Fund support recipients, like all 
other high-cost ETCs, will be required to offer standalone voice 
service and offer voice and broadband services at rates that are 
reasonably comparable to rates offered in urban areas. Some commenters 
urge the Commission to eliminate the standalone voice requirement. 
WISPA argues that RDOF recipients should not be required to offer 
standalone voice service, because, consumers increasingly are 
subscribing to voice as a component of their broadband connections. 
SpaceX claims the standalone voice requirement is no longer useful for 
nearly all consumers because Americans no longer choose to buy 
standalone voice, and the requirement adds costs to develop and make 
available voice equipment and provide voice-specific customer support. 
GeoLinks urges the Commission to simply require that auction winners 
offer a voice service option, which can be available via a service 
bundle. The National Association of Counties states that 
``unfortunately, the unintended consequence of this requirement would 
prevent willing and able entities from providing high-speed broadband 
internet services solely because they do not provide voice services in 
addition to broadband.''
    41. Section 254 of the Communications Act of 1934, as amended, 
gives the Commission the authority to support telecommunications 
services, which the Commission has defined as ``voice telephony 
service.'' The Commission made clear when it adopted the standalone 
voice requirement as a condition of receiving Connect America Fund 
support in 2011 that the definition of the supported service, voice 
telephony service, is technologically neutral, allowing ETCs to 
provision voice service over many platforms. When it adopted the 
broadband reasonable rate comparability requirement in 2014, the 
Commission explained that ``high-cost recipients are permitted to offer 
a variety of broadband service offerings as long as they offer at least 
one standalone voice service plan and one service plan that provides 
broadband that meets the Commission's requirements.'' In 2018, the 
Commission dismissed requests to eliminate the standalone voice 
requirement. The Commission reasoned that auction funding recipients, 
unlike funding recipients of other USF mechanisms, ``may be the only 
ETC offering voice in some areas and not all consumers may want to 
subscribe to broadband service.'' The record does not show that these 
facts have changed, and voice telephony is still the supported service. 
Therefore, the Commission requires all ETCs receiving Rural Digital 
Opportunity Fund support to provide standalone voice service meeting 
the reasonable comparability requirements in the areas in which they 
receive support.
    42. Some commenters suggest that the Commission adopts additional 
public interest obligations. For example, the Schools, Health & 
Libraries Broadband Coalition argues that the Commission should 
specifically require recipients of Rural Digital Opportunity Fund 
support to deploy high-quality broadband to

[[Page 13780]]

anchor institutions in their service territories. The California 
Emerging Technology Fund argues that the Commission should require 
every provider to propose a low-income package with a rate not to 
exceed $20. The Commission notes that support recipients, like all 
high-cost ETCs, will be required to report annually the number of 
anchor institutions to which they newly began providing service and to 
comply with all relevant Lifeline rules. Additional obligations 
regarding anchor institutions and low-income subscribers are more 
properly addressed in the Commission's other universal service 
programs.
    43. The Commission adopts interim service milestones for the Rural 
Digital Opportunity Fund that are based on those the Commission adopted 
for the CAF Phase II auction for monitoring progress in meeting 
deployment obligations. The Commission will require support recipients 
to commercially offer voice and broadband service to 40% of the CAM-
calculated number of locations in a state by the end of the third full 
calendar year following funding authorization, and 20% each year 
thereafter. The Commission modifies that approach, however, in the way 
it accounts for possible disparities between the CAM location counts 
and the actual number of locations in a winning bidder's service 
territory in a state. Although initial service milestones will be based 
on the number of locations identified by the CAM, the Commission is 
confident that it will have access to more accurate location data in 
the next few years, whether as a result of the Digital Opportunity Data 
Collection, the development of a broadband serviceable location 
database, the 2020 Census and/or some other data source. The Commission 
concludes that winning bidders will be required to serve the number of 
locations subsequently identified in each respective area. The 
Commission is persuaded by commenters who argue that the costs of 
building and operating broadband networks are predominantly governed by 
the size and characteristics of the areas served rather than the 
precise number of locations. The Commission accordingly directs the 
Bureau to seek comment on the updated location data and publish revised 
location counts no later than the end of service milestone year six, 
which the Commission expects to be 2027. The Commission will then use 
the new location counts to determine whether a Rural Digital 
Opportunity Fund support recipient offers the required voice and 
broadband service throughout the designated area by the end of 
milestone year eight.
    44. The Commission takes this approach because the record reflects 
considerable concern about the proposed pro rata reductions in a 
winning bidder's support if, ultimately, there are fewer locations than 
originally identified by the Commission. For the CAF Phase II auction, 
the Commission created a process to facilitate appropriate adjustments 
to the defined deployment obligations, with associated support 
reductions, and delegated the implementation of this process to the 
Bureau. Most commenters in this proceeding oppose the pro rata support 
reductions, and argue that the Commission should not penalize support 
recipients when the location data used to establish milestones 
overstates the number of locations in an area. The Commission agrees 
and will not reduce support if the Bureau's updated location counts 
indicate fewer actual locations in the awarded areas in most 
circumstances.
    45. Location counts in the CAM are based on 2011 Census data and 
the Commission recognizes that there may be some disparity between the 
number of locations identified before the auction occurs and the 
``facts on the ground.'' Moreover, circumstances may change before the 
end of the 10-year support term. Some rural areas may experience a 
decrease in population, and in other areas new housing developments may 
be built. By requiring build-out to the entire designated area even in 
light of the possibility that location numbers could change, the 
Commission seeks to ensure the availability of broadband and voice 
services to as many rural consumers and small businesses within the 
Phase I auction areas by the end of the ten-year term as possible.
    46. Until the Bureau adopts new location counts, the Commission 
will measure compliance with service milestones against the CAM 
location counts across the awarded areas for each Phase I support 
recipient. The Commission will require support recipients to 
commercially offer voice and broadband service to 40% of the CAM-
calculated number of locations in a state by the end of the third full 
calendar year following funding authorization, and 20% each year 
thereafter, consistent with the CAF Phase II deployment obligations. In 
the following, the Commission explains how service milestones will be 
revised in various circumstances after the Bureau gathers more accurate 
location counts.
    47. More Locations. After the Bureau adopts updated location 
counts, in areas where there are more locations than the number of CAM 
locations, the Commission will not require a support recipient to 
commercially offer voice and qualifying broadband to 100% of the new 
number of locations until year eight. The Commission will continue to 
use the CAM location counts to measure compliance with interim service 
milestones up to 100% of the CAM locations by the end of the sixth 
calendar year. If there are more new locations than CAM locations, 
recipients should be able to meet those milestones, and measuring 
compliance against the new number of locations later in the term will 
give carriers the opportunity to revise and update deployment plans 
after the Bureau announces the new number of locations. The Commission 
does not adopt an interim milestone for the end of year seven, although 
carriers will be required to report to Universal Service Administrative 
Company (USAC), consistent with current high-cost rules, any locations 
deployed in that calendar year. Support recipients will be required to 
offer service to 100% of the new location count by the end of year 
eight. Carriers for which the new location count exceeds the CAM 
locations within their area in each state by more than 35% will have 
the opportunity to seek additional support or relief from the 
Commission.
    48. Any such ETC with increased deployment obligations may also 
seek to have its new location count adjusted to exclude additional 
locations, beyond the number identified by CAM, that it determines 
before the end of year eight are ineligible (e.g., are not habitable), 
unreasonable to deploy to (e.g., if it would require a carrier to 
install new backhaul facilities or other major network upgrades solely 
to provide broadband to that location), or part of a development newly 
built after year six for which the cost and/or time to deploy before 
the end of the support term would be unreasonable.
    49. Fewer Locations. In areas where there are fewer locations than 
CAM locations, a support recipient must notify the Bureau no later than 
the March 1 following the fifth year of deployment. Upon confirmation 
by the Bureau, the Commission will require support recipients to reach 
100% of the new number by the end of the sixth calendar year. While 
planning and deploying its network, a support recipient that discovers 
there are not enough locations to even meet its service milestones in 
years three and four, which are based on the number of CAM locations, 
should seek a waiver from the Bureau. Carriers for which the

[[Page 13781]]

new location count is less than 65% of the CAM locations within their 
area in each state shall have their support amount reduced on a pro 
rata basis by the number of reduced locations.
    50. Newly Built Locations. In addition to offering voice and 
broadband service to the updated number of locations identified by the 
Bureau, the Commission requires support recipients to offer service on 
reasonable request to locations built subsequently. Support recipients 
are not obligated to offer service to these newly built locations that 
do not request service, or to those with exclusive arrangements with 
other providers. Assuming a two-year deployment cycle, support 
recipients similarly are not required to deploy to any locations built 
after milestone year eight.
    51. The Commission aligns the service milestones and related 
reporting deadlines with those of other high-cost programs to minimize 
the administrative burdens on the Commission, USAC, and support 
recipients. Regardless of when a Rural Digital Opportunity Fund 
recipient is authorized to begin receiving support, each service 
milestone will occur on December 31. The Commission acknowledges that, 
by aligning the service milestones, some Rural Digital Opportunity Fund 
support recipients likely will have more than three years to complete 
their 40% milestone. CenturyLink suggests that the Commission authorize 
funding for all winning bidders to begin on January 1, 2022 to align 
all Rural Digital Opportunity Fund support recipients on calendar year 
basis for receipt of support and corresponding obligations. The 
Commission finds that its method of aligning service milestones is 
preferable because it establishes December 31 as the service milestone 
date for all participants regardless of authorization date but still 
allows the Commission to authorize support for a participant and thus 
to begin broadband deployment in unserved areas as soon as possible.
    52. The Commission concludes that a support recipient will be 
deemed to be commercially offering voice and/or broadband service to a 
location if it provides service to the location or could provide it 
within 10 business days upon request. All ETCs must advertise the 
availability of their voice services through their service areas, and 
the Commission requires support recipients also to advertise the 
availability of their broadband services within their service area. 
Compliance with service milestone requirements will be determined on a 
state-level basis, so that a support recipient would be in compliance 
with a service milestone if it offers service meeting the relevant 
performance requirements to the required percentage of locations across 
all of the awarded areas included in its winning bids in a state.
    53. The Commission also sought comment on whether it should require 
support recipients to build out more quickly earlier in their support 
terms by offering voice and broadband to 50% of the requisite number of 
locations in a state by the end of the third year. A few commenters 
supported an accelerated buildout schedule, while the Navajo Nation and 
NNTRC asked the Commission to extend build-out milestones on Tribal 
Lands to recognize the difficulty in deploying infrastructure in Indian 
Country. Upon consideration, the Commission finds that using the same 
interim milestones as in the CAF II auction strikes the appropriate 
balance and, thus, adopts the identical first service milestone that it 
used there. Recipients have ample incentive to reach their buildout 
milestones as quickly as possible to increase their subscribership and 
revenues. However, the Commission also recognizes that deploying 
broadband in some areas will be more challenging than in others and may 
require all the time allowed by the deployment milestones.
    54. To ensure that support recipients are meeting their deployment 
obligations, the Commission adopts essentially the same reporting 
requirements for the Rural Opportunity Digital Fund that it adopted for 
the CAF Phase II auction. Consistent with the Commission's decision in 
this document to align the interim service milestones, it requires 
Rural Digital Opportunity Fund support recipients to file annually 
location and technology data in the HUBB at the same time and to make 
the same certifications when they have met their service milestones. 
The Commission also amends section 54.316 of its rules to require all 
Rural Digital Opportunity Fund support recipients, as all high-cost 
support recipients currently do, to file their annual location data in 
the HUBB by March 1, and the Commission encourages them to file such 
data on a rolling basis.
    55. The Commission also requires Rural Digital Opportunity Fund 
support recipients to file the same information in their annual FCC 
Form 481s that it requires of the CAF Phase II auction support 
recipients. Specifically, in addition to the certifications and 
information required of all high-cost ETCs in the FCC Form 481, Rural 
Digital Opportunity Fund support recipients will be required to certify 
each year after they have met their final service milestone that the 
network they operated in the prior year meets the Commission's 
performance requirements. In addition, they will be required to 
identify the number, names, and addresses of community anchor 
institutions to which they newly began providing access to broadband 
service in the preceding calendar year as well as identify the total 
amount of support that they used for capital expenditures in the 
previous calendar year. Moreover, support recipients will need to 
certify that they have available funds for all project costs that will 
exceed the amount of support they will receive in the next calendar 
year. Finally, Rural Digital Opportunity Fund support recipients will 
be subject to the same annual section 54.314 certifications, the same 
record retention and audit requirements, and the same support 
reductions for untimely filings as all other high-cost ETCs.
    56. In the event a support recipient does not meet a service 
milestone, the Commission adopts the same non-compliance measures that 
are applicable to all high-cost ETCs, the same framework for support 
reductions applicable to high-cost ETCs that are required to meet 
defined service milestones, and the same process the Commission adopted 
for drawing on letters of credit for the CAF Phase II auction. The 
Commission also adopts additional non-compliance measures for a support 
recipient that fails to meet its third-year service milestone by more 
than 50%. Specifically, the Commission relies on the following non-
compliance tiers (which are described in more detail in section 54.320 
of the Commission's rules):

                        Non-Compliance Framework
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Tier 1: 5% to less than 15% of the       Quarterly reporting.
 required number of locations.
Tier 2: 15% to less than 25% of the      Quarterly reporting + withhold
 required number of locations.            15% of monthly support.
Tier 3: 25% to less than 50% of the      Quarterly reporting + withhold
 required number of locations.            25% of monthly support.

[[Page 13782]]

 
Tier 4: 50% or more of the required      Quarterly reporting + withhold
 number of locations.                     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.
------------------------------------------------------------------------

    57. A support recipient will have the opportunity to move tiers as 
it comes into compliance and will receive any withheld support as it 
increases build-out and moves from one of the higher tiers (i.e., Tiers 
2-4) to Tier 1 status during the build-out period. If a support 
recipient misses the six year or eight year service milestone as 
applicable, it will have 12 months from the date of the service 
milestone deadline to come into full compliance.
    58. Given that the Commission is modifying the service deployment 
milestones to account for the Bureau's updated location counts, the 
Commission makes commensurate modifications to the consequences if an 
ETC does not come into full compliance after the grace period for its 
sixth-year service milestone or, for an ETC with a new location count 
that is greater than its CAM location count, its eighth-year service 
milestone. At the sixth-year service milestone, support will be 
recovered as follows: (1) If an ETC has deployed to 95% or more of the 
CAM location count, or of the adjusted CAM location count if there are 
fewer locations, but less than 100%, USAC will recover an amount of 
support that is equal to 1.25 times the average amount of support per 
location received in the state for that ETC over the support term for 
the relevant number of locations; (2) if an ETC has deployed to 90% or 
more of the CAM location count, or of the adjusted CAM location count 
if there are fewer locations, but less than 95%, USAC will recover an 
amount of support that is equal to 1.5 times the average amount of 
support per location received in the state for that ETC over the 
support term for the relevant number of locations, plus 5% of the 
support recipient's total Rural Digital Opportunity Fund support 
authorized over the ten-year support term for that state; and (3) if an 
ETC has deployed to fewer than 90% of the CAM location count, or of the 
adjusted CAM location count if there are fewer locations, USAC will 
recover an amount of support that is equal to 1.75 times the average 
amount of support per location received in the state for that ETC over 
the support term for the relevant number of locations, plus 10% of the 
support recipient's total Rural Digital Opportunity Fund support 
authorized over the ten-year support term for that state.
    59. If the ETC's new location count is greater than its CAM 
location count, and recognizing the increased obligations of such ETCs, 
support will be recovered as follows if the ETC does not meet the 
eighth year service milestone: (1) If an ETC has deployed to 95% or 
more of its new location count, but less than 100%, USAC will recover 
an amount of support that is equal to the average amount of support per 
location received in the state for that ETC over the support term for 
the relevant number of locations; (2) if an ETC has deployed to 90% or 
more of its new location count, but less than 95%, USAC will recover an 
amount of support that is equal to 1.25 times the average amount of 
support per location received in the state for that ETC over the 
support term for the relevant number of locations; (3) if an ETC has 
deployed to 85% or more of its new location count, but less than 90%, 
USAC will recover an amount of support that is equal to 1.5 times the 
average amount of support per location received in the state for that 
ETC over the support term for the relevant number of locations, plus 5% 
of the support recipient's total Rural Digital Opportunity Fund support 
authorized over the ten-year support term for that state; and (4) if an 
ETC has deployed to less than 85% of its new location count, USAC will 
recover an amount of support that is equal to 1.75 times the average 
amount of support per location received in the state for that ETC over 
the support term for the relevant number of locations, plus 10% of the 
support recipient's total Rural Digital Opportunity Fund support 
authorized over the ten-year support term for that state.
    60. The same support reductions will apply if USAC later determines 
in the course of a compliance review that a support recipient does not 
have sufficient evidence to demonstrate that it was offering service to 
all of the locations required by the sixth or eighth service 
milestones.
    61. As in the CAF Phase II auction, USAC will be authorized to draw 
on an ETC's letter of credit to recover all of the support that is 
covered by the letter of credit in the event that a support recipient 
does not meet the relevant service milestones, does not come into 
compliance during the cure period, and does not timely repay the 
Commission the support associated with the non-compliance gap. If a 
support recipient is in Tier 4 status during the build-out period or 
has not deployed to 100% of CAM locations by the end of year six (or 
the adjusted location total if there are fewer locations), and USAC has 
initiated support recovery as described in this document, the support 
recipient will have six months to pay back the support that USAC seeks 
to recover. If the support recipient does not repay USAC by the 
deadline, the Bureau will issue a letter to that effect and USAC will 
draw on the letter of credit to recover all of the support that is 
covered by the letter of credit. If a support recipient has closed its 
letter of credit and it is later determined that the support recipient 
does not have sufficient evidence to demonstrate that it was offering 
service to the total number of required locations, that support 
recipient will be subject to additional non-compliance measures if it 
does not repay the Commission after six months. And like other high-
cost ETCs, support recipients will be subject to other sanctions for 
non-compliance with the terms and conditions of high-cost funding, 
including but not limited to the Commission's existing enforcement 
procedures and penalties, reductions in support amounts, potential 
revocation of ETC designations, and suspension or debarment.
    62. The Commission sought comment on whether there are additional 
measures it could adopt that would help ensure that Rural Digital 
Opportunity Fund support recipients will meet their third-year service 
milestones, and on what steps it should take if it appears support 
recipients will not be able to meet their service milestones. The 
National Rural Electric Cooperative Association (NRECA) suggested the 
Commission make more detailed inquiries of a support recipient to the 
extent it substantially misses the 40% service obligation at the three-
year benchmark and possibly terminate support payments. The Commission 
agrees with NRECA that it is unlikely that a recipient that 
substantially misses its third-year milestone would be able to come 
into compliance in the following year. The Commission therefore directs

[[Page 13783]]

any support recipient that believes it cannot meet its year three 
milestone to notify the Bureau and provide information explaining this 
expected deficiency. If a support recipient has not made such 
notification by March 1 following the third-year service milestone and 
has deployed by the end of the third-year milestone to fewer than 20% 
of its required locations in that state, the Commission will find the 
recipient to be in default, rather than withholding support and 
providing an additional six months to come into compliance.
    63. The Commission declines to adopt additional performance targets 
to provide greater incentives for Rural Digital Opportunity Fund 
support recipients to enroll customers in the eligible areas. The 
Commission specifically sought comment on a proposal to adopt 
subscribership milestones set at 70% of the yearly deployment 
benchmarks and reduce support accordingly for failure to meet the 
subscription target. Most commenters opposed a subscription requirement 
and argued that a 70% subscription requirement was too high and 
unrealistic in rural areas. Even some commenters supporting the concept 
of a subscription requirement thought 70% was too high and suggested 
any subscribership requirement should be as low as 35%. Commenters 
argued that a subscribership requirement with reductions in support for 
failure to meet those targets would discourage participation in the 
auction, and change the focus of the Rural Digital Opportunity Fund 
program from a deployment program to an adoption program.
    64. The Commission agrees that requiring specific subscription 
milestones is likely to discourage many bidders from participating in 
the auction because they would risk losing funding when they likely 
need it most to complete the buildout of their networks. Commenters 
pointed out that support recipients have a statutory obligation to 
advertise the availability of their services throughout their service 
areas and argue that they have the incentive to attract customers to 
increase their revenues. Commenters also argued that subscription rates 
of 70% in some rural, low-income areas would be almost impossible to 
attain. In addition, support recipients must be prepared to provide 
service meeting the relevant public interest obligations within 10 
business days to any locations they report in the HUBB for purposes of 
meeting the service milestones, which will give support recipients 
added incentive to ensure their networks have sufficient capacity to 
serve the required number of locations. Given these requirements, the 
risk of discouraging participation in the auction, and the 
administrative complexity of monitoring subscribership, the Commission 
declines to require a certain level of subscription as a condition of 
Rural Digital Opportunity Fund support.
    65. Consistent with prior Commission auctions and based on its 
recent experience with the CAF Phase II auction, the Commission adopts 
the two-stage application process that will govern the auction process 
for the Rural Digital Opportunity Fund, including pre-auction and post-
auction requirements.
    66. The Commission concludes that participants in the Rural Digital 
Opportunity Fund Phase I auction process will be required to comply 
with the same short-form and long-form application process. 
Specifically, in the pre-auction short-form application, a potential 
bidder will be required to establish its eligibility to participate in 
the auction by providing, among other things, basic ownership 
information and certifying to its qualifications to receive support. 
Once approved as qualified to bid by the Bureau, the company may 
participate in the auction. After the auction, winning bidders must 
file more extensive information for the long-form application, 
demonstrating to the Commission that they are legally, technically and 
financially qualified to receive support. As in CAF Phase II, the 
Commission stresses that each potential bidder has the sole 
responsibility to perform its due diligence research and analysis 
before proceeding to participate in the Rural Digital Opportunity Fund 
auction. The Commission directs the Bureau, the Office of Economics and 
Analytics, and the Rural Broadband Auctions Task Force, to adopt the 
format and deadlines for the submission of documentation for the short-
form and long-form applications.
    67. Consistent with the approach in the CAF Phase II auction and 
proposed in the Rural Digital Opportunity Fund NPRM, the Commission 
adopts its existing universal service competitive bidding rules so that 
applicants will be required to provide information that will establish 
their identity, including disclosing parties with ownership interests 
and any agreements the applicants may have relating to the support to 
be sought through the Rural Digital Opportunity Fund auction. 
Interested parties will submit a pre-auction short-form application, 
providing basic information and certifications regarding their 
eligibility to receive support. Commission staff will then review the 
short-form applications, determining whether the applicants are 
eligible to participate in the auction. Thereafter, Commission staff 
will release a public notice indicating which short-form applications 
are deemed complete and which are deemed incomplete. Consistent with 
CAF Phase II, applicants whose short-form applications are deemed 
incomplete will be given a limited opportunity to cure defects and to 
resubmit correct applications, excluding major modifications. As in CAF 
Phase II, a second public notice will be released designating the 
applicants that are qualified to participate in the Rural Digital 
Opportunity Fund auction.
    68. Ownership. The Commission will require that each auction 
applicant provide information in its short-form application to 
establish its identity, including information concerning its real 
parties in interest and its ownership, and to identify all real parties 
in interest to any agreements relating to the participation of the 
applicant in the competitive bidding. The Commission will also require 
an applicant to provide in its short-form application a brief 
description of any such agreements, including any joint bidding 
arrangements. Commission staff would use such information to identify 
relationships among applicants, including those that might be commonly 
controlled or members of a joint bidding arrangement. The Commission 
will also require every applicant to certify in its short-form 
application that it has not entered into any explicit or implicit 
agreements, arrangements, or understandings of any kind related to the 
support to be sought through the Rural Digital Opportunity Fund 
auction, other than those disclosed in the short-form application.
    69. Types of Technologies. The Commission will also require all 
applicants to indicate the type of bids that they plan to make and 
describe the technology or technologies they will use to provide 
service for each bid. This information is imperative to establishing 
bidders' eligibility for the bidding weights the Commission adopts. 
Consistent with CAF Phase II, the Commission will allow an applicant to 
use different technologies within a state as well as hybrid networks to 
meet its public interest obligations.
    70. Technical and Financial Qualifications Certifications. 
Likewise, applicants will be required to certify that they are 
financially and technically qualified to meet the public interest 
obligations in each area for which they

[[Page 13784]]

seek Rural Digital Opportunity Fund support. Based on the Commission's 
experience with CAF Phase II, this approach is an appropriate screening 
process to ensure serious participation, without being overly 
burdensome to applicants and recipients.
    71. Operational History. Applicants will be required to provide 
additional assurances to the Commission that the entities that intend 
to bid in the auction have experience operating networks. The 
Commission adopts a requirement that applicants certify in their short-
form application that they have provided voice, broadband, and/or 
electric distribution or transmission services for at least two years 
and that they specify the number of years they have been operating, or 
that they are the wholly-owned subsidiary of an entity that meets these 
requirements. Applicants that have provided voice or broadband services 
must also certify that they have filed FCC Form 477s as required during 
that time period. As the Commission determined in CAF Phase II, it also 
will accept certifications from entities that have provided electric 
distribution or transmission services for at least two years (or their 
wholly owned subsidiaries).
    72. An applicant that can certify it has provided voice, broadband, 
and/or electric distribution or transmission services for at least two 
years, or that it is a wholly-owned subsidiary of such an entity, will 
provide the Commission with sufficient assurance before the auction 
that it has the ability to build and maintain a network.
    73. The Commission will require each applicant that does not have 
two years of operational experience, to submit with its short-form 
application its (or its parent company's) financial statements that 
have been audited by an independent certified public accountant from 
the three prior fiscal years, including the balance sheets, incomes, 
and cash flow statements, along with a qualified opinion letter. The 
Commission's interest in having a level of insight into the financial 
health of a potential Rural Digital Opportunity Fund auction bidder 
over a longer period of time is a necessary prequalification to bid, 
particularly because this subset of bidders will not able to 
demonstrate that they have operated and maintained a voice, broadband 
and/or electric distribution or transmission network for at least two 
years. Likewise, such applicants will also be required to submit a 
letter of interest from a bank meeting the Commission's eligibility 
requirements stating that the bank would provide a letter of credit to 
the applicant if the applicant becomes a winning bidder and is awarded 
support of a certain dollar magnitude. A letter of interest from the 
bank will provide the Commission with an independent basis for some 
additional assurance regarding the financial status of the entity.
    74. The Commission declines to adopt a suggestions from USTelecom 
and Windstream to limit the total bid based on the bidder's annual 
revenues, while Verizon proposes further pre-auction scrutiny ``on 
applicants that are seeking authority to bid for a large number of 
locations, relative to the size of their existing customer base, or are 
planning to bid for performance tiers in which they currently provide 
little or no commercial service.'' The Commission is not persuaded that 
either of these proposals are an effective method to guarantee the 
financial qualifications of bidders to perform; instead, they would 
more likely limit competition by arbitrarily excluding bidders with 
more limited revenues or existing customer bases. The Commission is 
generally reluctant to adopt additional measures that limit competition 
from bidders and any concerns with financial qualifications will be 
resolved during the short-form applications.
    75. The Commission declines to collect less financial and technical 
information from existing USF support recipients on the short-form than 
it did in CAF Phase II as suggested by some commenters. It is important 
for Commission staff to review the same specific information from each 
carrier when evaluating carriers' qualifications to bid. However, CAF 
Phase II auction participants that subsequently defaulted on their 
entire award will be barred from participating in the Rural Digital 
Opportunity Fund. The Commission declines to bar participants that 
defaulted in other universal service programs as well as decline to 
subject participants to additional scrutiny that subsequently defaulted 
in CAF Phase II, as suggested by other commenters, or that have filed 
for bankruptcy or that have been bankrupt in the recent past. The 
Commission is capable of evaluating the circumstances of a prior 
default and the outcome of any subsequent enforcement action without 
collecting additional information in the short-form application. All 
applicants will be subject to a thorough financial and technical review 
in both the short-form application stage and the long-form application 
stage prior to bidding and ultimately receiving support.
    76. Conversely, some commenters stated that the Commission should 
increase the short-form requirements. For instance, NTCA asserted that 
the Commission should require that a prospective bidder demonstrate 
``more thorough qualifications at the short-form stage'' focusing on 
technical and operational qualifications. NRECA proposes shifting to 
the short-form review more of the detailed technical and financial 
showings conducted at the long-form review. USTelecom states that the 
Commission should require an applicant to provide information about 
subscribership trends and employee expertise to show that it has the 
expertise and experience ``to scale its network.'' Subscribership and 
employee expertise do not necessarily suggest that the entity is 
unqualified to bid in the Rural Digital Opportunity Fund auction. The 
Commission's interest in maximizing participation in the Rural Digital 
Opportunity Fund auction outweighs the potential risk of qualifying a 
less experienced entity to participate in the auction without reviewing 
that bidder's subscribership and employee counts, particularly given 
that it adopts the requirement that bidders will be required to submit 
their audited financial statements. This will allow the Commission to 
scrutinize the bidder's audited financial statements at the long-form 
application stage before authorizing that entity to begin receiving 
support. The Commission believes that requiring more technical and 
operational information before the auction begins will provide 
significant barriers to entry for some participants and unnecessarily 
extend the short-form review period and delay the auction. Moreover, 
additional technical information at the short-form stage would be 
speculative based on a presumption of what a winning area would look 
like.
    77. Similarly, the Commission declines NTCA's proposal to require 
applicants to submit propagation maps to show where they intend to bid, 
as it would be burdensome on applicants ``particularly given the maps 
may not be relevant if an applicant does not become qualified or does 
become qualified but does not win support in that area.'' The 
Commission concludes on balance that its short-form process provides 
significant assurances for serious participation and its long-form 
post-auction process, as discussed in the following, will provide an 
in-depth extensive review of the winning bidders' qualifications.
    78. Audited Financials. The Commission will require each applicant 
that has certified that it has at least two years of operational 
experience to submit financial statements that have been audited by an 
independent certified public accountant from the

[[Page 13785]]

prior fiscal year, including balance sheets, net income and cash flow, 
along with a qualified opinion letter with its short-form application. 
If such an applicant (or its parent company) is not audited in the 
ordinary course of business, the Commission will require the applicant 
to submit unaudited financial statements from the prior fiscal year 
with its short-form application and to certify that it will submit 
audited financials during the long-form application process. The 
Commission will require winning bidders that take advantage of this 
option to submit their audited financials no later than the deadline 
for submitting their proof of ETC designation (which is within 180 days 
of the public notice announcing winning bidders). If the audit process 
is expected to exceed 180 days, a winning bidder will have the option 
of seeking a waiver of this deadline. In considering such waiver 
requests, the Commission directs the Bureau to determine whether the 
entity demonstrated in its waiver petition that it took steps to 
prepare for an audit prior to being named a winning bidder and that it 
took immediate steps to obtain an audit after being announced as a 
winning bidder. Applicants that certify that they have at least two 
years of operational experience and fail to submit audited financial 
statements as required, will be subject to the same base forfeiture of 
$50,000 that the Commission adopted for the CAF Phase II auction. The 
Commission notes that most CAF Phase II auction support recipients were 
able to obtain audited financial statements by the required deadlines. 
As with the CAF Phase II auction, the Commission does not extend to 
applicants that lack two years of operational history the option of 
submitting audited financial statements during the long-form 
application stage. They must submit audited financial statements from 
the three prior fiscal years with their short-form application, as 
described in this document.
    79. Eligible Telecommunications Carrier Designation. The Commission 
adopts the same CAF Phase II flexibility with respect to ETC 
designations and do not require an applicant to obtain its designation 
as an ETC in the areas where it seeks support prior to bidding in the 
Rural Digital Opportunity Fund auction. The Commission does, however, 
require an applicant to disclose in its short-form application its 
status as an ETC in any area for which it will seek support or if it 
will become an ETC in any area where it wins support. The Commission is 
not persuaded that it should require an applicant to secure its ETC 
designation prior to the auction. As the Commission determined in CAF 
Phase II, permitting entities to obtain ETC designation after the 
announcement of winning bidders for support, encourages broader 
participation in the competitive process by a wider range of entities. 
Additionally, the Commission's experience with CAF Phase II indicates 
that most applicants were ultimately designated within the long form 
review period, even if it took them longer than the ETC designation 
proof deadline. The Commission will continue to presume that an entity 
acted in good faith if it files its ETC application within 30 days of 
the release of the public notice announcing that it is a winning 
bidder, but as with both the rural broadband experiments and the CAF 
Phase II auction, the Commission discovered there were various 
circumstances impacting the ability of individual bidders to file their 
ETC applications and that when an application was filed did not always 
determine whether an applicant was designated within the 150 remaining 
days.
    80. Spectrum Access. Additionally, with respect to eligibility 
requirements relating to spectrum access, applicants will be required 
to disclose and certify the source of the spectrum they plan to use to 
meet Rural Digital Opportunity Fund obligations in the particular 
area(s) for which they plan to bid. Specifically, applicants will be 
required to disclose whether they currently hold a license or lease the 
spectrum, including any necessary renewal expectancy, and whether such 
spectrum access is contingent on obtaining support in the auction. 
Consistent with CAF Phase II, the Commission will require applicants 
intending to use spectrum to indicate the spectrum band(s) they will 
use for the last mile, backhaul, and any other parts of the network; 
and the total amount of uplink and downlink bandwidth (in megahertz) 
that they have access to in each spectrum band for last mile. 
Applicants must also describe the authorizations they have obtained to 
operate in the spectrum and list the call signs and/or application file 
numbers associated with their spectrum authorizations, if applicable. 
Applicants must have secured any Commission approvals necessary for the 
required spectrum access prior to submitting an auction application, if 
applicable. Moreover, applicants will be required to certify that they 
will retain their access to the spectrum for at least ten years from 
the date support is authorized. NTCA argues that applicants who do not 
have access to spectrum should be required to show how they would 
acquire it. The Commission agrees and, consistent with its treatment of 
this situation in CAF Phase II, it will find a recipient in default if 
it is unable to meet its obligations, including if the authorization is 
not renewed during the support term.''
    81. Also, any applicant that intends to provide service using 
satellite technology will be required to identify in its short-form 
application its expected timing for applying for any earth station 
licenses it intends to use in the areas where it intends to bid, if it 
has not already obtained these licenses. The Commission does not 
require satellite providers to obtain all necessary earth station 
licenses by the short-form application deadline. An earth station 
license requires that a satellite provider bring the station into 
operation within one year of obtaining a license and a satellite 
provider may not be ready to meet this requirement by the short-form 
filing deadline. Moreover, because an applicant can apply to obtain a 
microwave license at any time, the Commission will permit an applicant 
that intends to obtain microwave license(s) for backhaul to meet its 
public interest obligations for the Rural Digital Opportunity Fund by 
describing in its short-form application its expected timing for 
applying for such license(s), if it has not already obtained them.
    82. Due Diligence Certification. Consistent with the procedures 
adopted for the CAF Phase II auction, the Commission adopts the 
requirement that an applicant certify that it has performed due 
diligence concerning its potential participation in the Rural Digital 
Opportunity Fund auction so the applicant understands its obligations. 
Specifically, the Commission adopts the requirement that each applicant 
make the following certification in its short-form application under 
penalty of perjury:

    The applicant acknowledges that it has sole responsibility for 
investigating and evaluating all technical and marketplace factors 
that may have a bearing on the level of Rural Digital Opportunity 
Fund support it submits as a bid, and that if the applicant wins 
support, it will be able to build and operate facilities in 
accordance with the Rural Digital Opportunity Fund obligations and 
the Commission's rules generally.

    83. This proposed certification will help ensure that each 
applicant acknowledges and accepts responsibility for its bids and any 
forfeitures imposed in the event of default, and that the applicant 
will not attempt to place responsibility for the

[[Page 13786]]

consequences of its bidding activity on either the Commission or third 
parties.
    84. Winning bidders for the Rural Digital Opportunity Fund support 
will be required to comply with the same long-form application process 
the Commission adopted for CAF Phase II. The rules the Commission 
adopts in the following provide the basic framework and requirements 
for winning bidders to demonstrate their qualifications for support. 
After the close of the auction, the Bureau will release a public notice 
declaring the auction closed, identifying the winning bidders, and 
establishing details and deadlines for next steps. Winning bidders will 
then be required to submit extensive information detailing their 
respective qualifications in their long-form applications, allowing for 
a further in-depth review of their qualifications prior to 
authorization of support. Any additional information that is required 
to establish whether an applicant is eligible for Rural Digital 
Opportunity Fund support will be announced by public notice. The 
Commission notes that very few commenters addressed the Commission's 
proposed post-auction long-form application processes and none of those 
commenters raised significant concerns. The Commission therefore 
concludes the rules it adopts in this document will best serve the 
Commission's ability to determine whether the applicants are ultimately 
eligible for Rural Digital Opportunity Support authorization funding, 
providing a fair and efficient review process.
    85. Ownership Disclosure. The Commission adopts the ownership 
disclosure requirements proposed in the Rural Digital Opportunity Fund 
NPRM. Specifically, an applicant for Rural Digital Opportunity Fund 
support must fully disclose its ownership structure as well as 
information regarding the real party- or parties-in-interest of the 
applicant or application. Ownership disclosure reports from the short-
form process must be updated if any information reported in the short-
form has changed.
    86. Financial and Technical Capability Certification. Consistent 
with CAF Phase II, the Commission will require a long-form applicant to 
certify that it is financially and technically capable of providing the 
required coverage and performance levels within the specified timeframe 
in the geographic areas in which it won support.
    87. Public Interest Obligations Certifications. The Commission next 
adopts proposed rule 54.804(b)(2)(iii), concluding that a long-form 
applicant must certify in its long-form application that it will meet 
the relevant public interest obligations for each performance tier and 
latency combination for which it was deemed a winning bidder, including 
the requirement that it will offer service at rates that are equal to 
or lower than the Commission's reasonable comparability benchmarks for 
fixed services offered in urban areas.
    88. Description of Technology and System Design. Due to the varying 
types of technologies that entities may use to fulfill their Rural 
Digital Opportunity Fund competitive bidding process obligations, the 
Commission finds that it is also reasonable to require each winning 
bidder to submit a description of the technology and system design it 
intends to use to deliver voice and broadband service, including a 
network diagram, which must be certified by a professional engineer. 
The professional engineer must certify that the network is capable of 
delivering, to at least 95% percent of CAM locations in each relevant 
state, voice and broadband service that meets the requisite performance 
requirements. There must be sufficient capacity to meet customer demand 
at or above the prescribed levels during peak usage periods. Entities 
proposing to use wireless technologies also must provide a description 
of their spectrum access in the areas for which they seek support and 
demonstrate that they have the required licenses to use that spectrum 
if applicable. This documentation will enable Commission staff to have 
assurance from an engineer that the proposed network will be able to 
fulfill the service obligations to which the bidders will have to 
commit. Filing deadlines will be strictly enforced, and bidders should 
not presume that they may obtain a waiver absent extraordinary 
circumstances.
    89. Available Funds Certification. Next the Commission adopts 
proposed rule 54.804(b)(2)(v), concluding that an applicant must 
certify in its long-form application that it will have the funds 
available for all project costs that exceed the amount of support to be 
received, and that it will comply with all program requirements. 
Simultaneously, the Commission will also require that winning bidders 
describe in their long-form application how the required construction 
will be funded and include financial projections that demonstrate that 
they can cover the necessary debt service payments over the life of the 
loan. Additionally, these requirements include the public interest 
obligations contained in the Commission's rules.
    90. ETC Eligibility and Documentation. Consistent with the CAF 
Phase II auction rules, a winning bidder in the Rural Digital 
Opportunity Fund auction will be permitted to obtain its ETC 
designation after the close of the auction, submitting proof within 180 
days of the public notice identifying winning bidders. The Commission 
declines to forbear from the ETC requirement. The Commission recognizes 
the statutory role that Congress created for state commissions and the 
FCC with respect to ETC designations, and the Commission does not 
disturb that framework. Nothing in the record addresses the standards 
necessary to find forbearance in the public interest, even if some 
interested parties may prefer not to become ETCs with all of the 
associated obligations. Therefore, the Commission will continue to 
require service providers to obtain ETC status to qualify for universal 
service support. A winning bidder must demonstrate with appropriate 
documentation that it has been designated as an ETC covering each of 
the geographic areas for which it seeks to be authorized for support. 
For example, in addition to providing the relevant state or Commission 
orders, each winning bidder will need to demonstrate that its ETC 
designation covers the areas of its winning bid(s) (e.g., census 
blocks, wire centers, etc.). Such documentation could include map 
overlays of the winning bid areas, or charts listing designated areas. 
Furthermore, each winning bidder will be required to submit a letter 
with its documentation from an officer of the company certifying that 
its ETC designation for each state covers the relevant areas where the 
winning bidders will receive support. As the Commission experienced 
with CAF Phase II, these requirements will help them verify that each 
winning bidder is permitted to operate in the areas where it will be 
receiving support.
    91. Forbearance from Service Area Redefinition Process. The 
Commission adopts its proposal to forbear from the statutory 
requirement that the ETC service area of a Rural Digital Opportunity 
Fund participant conform to the service area of the rural telephone 
company serving the same area. As in the CAF Phase II auction, the 
Commission will be maximizing the use of Rural Digital Opportunity Fund 
support by making it available for only one provider per geographic 
area. Moreover, the Commission expects that the incumbent rural 
telephone company's service area will no longer be relevant because the 
incumbent service

[[Page 13787]]

provider may be replaced by another Rural Digital Opportunity Fund 
recipient in portions of its service area. Thus, forbearance is 
appropriate and in the public interest.
    92. Accordingly, for those entities that obtain ETC designations as 
a result of being selected as winning bidders for the Rural Digital 
Opportunity Fund, the Commission forbears from applying section 
214(e)(5) of the Act, insofar as this section requires that the service 
area of such an ETC conform to the service area of any rural telephone 
company serving an area eligible for Rural Digital Opportunity Fund 
support. The Commission notes that forbearing from the service area 
conformance requirement eliminates the need for redefinition of any 
rural telephone company service areas in the context of the Rural 
Digital Opportunity Fund competitive bidding process. However, if an 
existing ETC seeks support through the Rural Digital Opportunity Fund 
competitive bidding process for areas within its existing service area, 
this forbearance will not have any impact on the ETC's pre-existing 
obligations with respect to other support mechanisms and the existing 
service area. Likewise, as in CAF Phase II, some of the price cap 
carrier study areas that may become eligible for the Rural Digital 
Opportunity Fund competitive bidding process meet the statutory 
definition so that the carrier serving those study areas would be 
classified as a rural telephone company.
    93. Thus, the Commission concludes that forbearance is warranted in 
these limited circumstances. The Commission's objective is to 
distribute support to winning bidders as soon as possible so that they 
can begin the process of deploying new broadband to consumers in those 
areas. Case-by-case forbearance would likely delay the Commission's 
post-selection review of entities once they are announced as winning 
bidders. The Act requires the Commission to forbear from applying any 
requirement of the Act or its regulations to a telecommunications 
carrier if the Commission determines that: (1) Enforcement of the 
requirement is not necessary to ensure that the charges, practices, 
classifications, or regulations by, for, or in connection with that 
telecommunications carrier or telecommunications service are just and 
reasonable and are not unjustly or unreasonably discriminatory; (2) 
enforcement of that requirement is not necessary for the protection of 
consumers; and (3) forbearance from applying that requirement is 
consistent with the public interest. For the same reasons set forth in 
the CAF Phase II Auction Order, 81 FR 44414, July 7, 2016, the 
Commission concludes each of these statutory criteria is met for 
winning bidders of the Rural Digital Opportunity Fund competitive 
bidding process.
    94. Letters of Credit. The Commission next adopts letter of credit 
rules that provide appropriate protection for Rural Digital Opportunity 
Fund support, with reduced burdens on participants. In CAF Phase II, 
the Commission found that requiring bidders to obtain an irrevocable 
standby letter of credit, covering the first year of support of a 
recipient's winning bid, was an effective means to safeguard the 
universal service funds. Moreover, the letter of credit was subject to 
a phase-down schedule, reducing the burdens on the recipients. The 
letter of credit requirement did not deter broad participation in the 
CAF Phase II auction where the Commission awarded $1.488 billion in 
support to 103 winning bidders and, as of December 2019, nearly 90 
percent of carriers have been authorized after securing valid letters 
of credit. Thus, the Commission is not persuaded to adopt suggestions 
from commenters that it removes the letter of credit requirement 
entirely, either for all winning bidders or for certain groups of 
winning bidders such as Tribally owned and controlled carriers or 
established rural carriers.
    95. The Commission finds appropriate, however, certain 
modifications to the letter of credit requirements proposed in the 
Rural Digital Opportunity Fund NPRM. The Commission makes these changes 
after hearing from commenters concerned about the fees associated with 
maintaining the larger letters of credit required because of the size 
of the Rural Digital Opportunity Fund. The Commission concludes that 
the modified letter of credit requirements it adopts in the following, 
which establishes a mechanism to easily recover disbursed funding in 
the event of non-compliance, fulfills its responsibility to protect 
program funds while also reducing for applicants the costs of 
participating in the Rural Digital Opportunity Fund.
    96. First, the Commission's revised approach allows a support 
recipient to reduce the amount of its letter of credit as it meets--and 
USAC verifies that a support recipient has completed--service 
milestones. Specifically, the Commission requires support recipients to 
report their deployed locations in the HUBB by March 1 following each 
support year. Upon verification of the buildout by USAC, the Commission 
will then allow the recipient to reduce its letter of credit to an 
amount equal to only one year of total support. And 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.
    97. Second, the Commission creates an optional 20% service 
milestone in year two. Doing so allows a support recipient to 
demonstrate concrete progress in building its network earlier than 
existing milestones (40% in year three), thus allowing it to reduce its 
letter of credit earlier than it could otherwise. The Commission 
reiterates that this 20% buildout benchmark is optional; if a support 
recipient does not meet this milestone, it will not be able to reduce 
its letter of credit, but it will not face any reductions in support.
    98. Third, the Commission finds that support recipients do not need 
to wait for the specific support years to end to meet their deployment 
milestones. For example, if a support recipient is able to deploy to 
20% of its locations by the end of year one, it may report those 
locations and request that USAC complete the verification process for 
those locations in order to allow it to reduce its letter of credit to 
one year of support. In those instances, the Commission requires that 
these support recipients be able to immediately produce the necessary 
documentation to minimize the time required for USAC to verify its 
milestone.
    99. Fourth, the Commission adopts a modified letter of credit 
requirement for the time periods before any required service milestones 
must be met and verified by USAC. Specifically, at 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. This schedule 
balances the need to protect federal funds against the costs of a 
letter of credit for those that decline to meet the optional 20% 
deployment milestone.
    100. Fifth, the Commission finds it necessary to maintain larger 
letters of credit for support recipients that fail to meet service 
milestones. If the support recipient misses a required service 
milestone, it will be required to obtain a letter of credit covering an 
additional year of total support for the next

[[Page 13788]]

applicable support year, up to a letter of credit covering a total of 
three years of support. Likewise, any support recipient failing to meet 
two or more service milestones will be required to maintain a letter of 
credit in the amount of three years of support and will be subject to 
additional non-compliance penalties as outlined in this document. The 
Commission finds these increased letter of credit requirements will 
both protect federal funds from potential default and serve as an 
incentive to timely deployment.
    101. Sixth, consistent with CAF Phase II, the Commission will 
require that the letter of credit only remain open until the recipient 
has certified that it has deployed broadband and voice service meeting 
the Commission's requirements to 100% of the CAM locations by the end 
of year six, and USAC has verified that the recipient has fully 
deployed its network. The Commission does not expect new additional 
locations in years seven and eight to be significant enough that it 
would be necessary to secure that additional deployment with a letter 
of credit, but recipients will be subject to other sanctions for non-
compliance with the terms and conditions of Rural Digital Opportunity 
Fund support, including but not limited to the Commission's existing 
enforcement procedures and penalties, reductions in support amounts, 
potential revocation of ETC designations, and suspension or debarment.
    102. In short, the Commission provides a letter of credit 
trajectory that recognizes that once support recipients have 
demonstrated significant and verifiable steps toward meeting their 
deployment obligations, they should have the opportunity to avoid some 
of the more significant credit requirements, consistent with their 
proven performance in the Rural Digital Opportunity Fund. For those 
support recipients that elect to deploy quickly and meet the 20% 
optional milestone early in the support term, and continue to meet all 
milestones, their letters of credit may never exceed 18 months' support 
at any time during the support term. At the same time, the more gradual 
increase in the letter of credit requirements the Commission adopts for 
support recipients that do not elect to make use of the optional 20% 
milestone will reduce potential financial strain on support recipients, 
and still allow those support recipients to maintain a smaller letter 
of credit once their first mandatory deployment milestone is met in 
year three.
    103. The Commission declines to adopt the specific parameters of 
the letter of credit proposals advanced and supported by several 
parties. After thorough review of these constructive proposals, the 
Commission determines that they fail to sufficiently account for the 
Commission's interests in ensuring that universal service dollars are 
being used efficiently and for their intended purposes, as well as 
protecting against the potential for those carriers that may fail to 
fulfill their broadband deployment obligations. However, the approach 
the Commission adopts here is consistent with the proposals advocated 
by parties in that it recognizes that the letter of credit rules, as 
originally proposed, would impose a disproportionate financial burden 
on support recipients and result in less funding going directly to 
broadband deployment. Moreover, given that the Rural Digital 
Opportunity Fund will award up to almost 15 times the amount of funding 
as the CAF Phase II auction, the Commission acknowledges that a one-
size-fits-all approach to letter of credit requirements may not 
properly reflect the realities of a particular auction. Thus, the 
Commission's revised approach strives to carefully balance the interest 
of potential support recipients in minimizing their financial cost over 
the course of the deployment term with the Commission's interest in 
ensuring that universal funding is protected as the Rural Digital 
Opportunity Fund progresses.
    104. Consistent with CAF Phase II, the Commission will only 
authorize USAC to draw on the letter of credit for the entire amount of 
the letter of credit if the entity does not repay them for the support 
associated with its compliance gap. Additionally, as stated in CAF 
Phase II, ``if the entity fails to pay this support amount, the 
Commission concludes that the risk that the entity will be unable to 
continue to serve its customers or may go into bankruptcy is more 
likely, and thus it is necessary to ensure that the Commission can 
recover the entire amount of support that it has disbursed.'' The 
Commission also requires each winning bidder to submit a commitment 
letter from a bank no later than the number of days provided by public 
notice. A long-form applicant must submit a letter from a bank 
acceptable to the Commission, committing to issue an irrevocable stand-
by letter of credit, to the long-form applicant. The letter must, at a 
minimum, provide the dollar amount of the letter of credit and the 
issuing bank's agreement to follow the terms and conditions of the 
Commission's model letter of credit provided in Appendix C of the 
Order.
    105. Once a winning bidder has been authorized, the Commission will 
require an irrevocable standby letter of credit from a bank that is 
acceptable to them in substantially the same form as the model letter 
of credit provided in Appendix C of the Order. The letters of credit 
for winning bidders must be obtained from a domestic or foreign bank 
meeting the requirements adopted herein. For U.S. banks, the bank must 
be insured by the Federal Deposit Insurance Corporation and have a 
Weiss bank safety rating of B- or higher committing to issue a letter 
of credit. Similarly, for non-U.S. banks, the Commission requires that 
the bank be among the 100 largest non-U.S. banks in the world 
(determined on the basis of total assets as of the end of the calendar 
year immediately preceding the issuance of the letter of credit, 
determined on a U.S. dollar equivalent basis as of such date). Winning 
bidders also have the option of obtaining a letter of credit from 
CoBank or the National Rural Utilities Cooperative Finance Corporation 
so long as they continue to meet the Commission's requirements. When a 
winning applicant obtains a letter of credit, it must be at least equal 
to the amount of the first year of authorized support. Before the 
winning applicant can receive its next year's support, it must modify, 
renew, or obtain a new letter of credit. The Commission concludes that 
requiring recipients to obtain a letter of credit on at least an annual 
basis will help minimize administrative costs for USAC and the 
recipient rather than having to negotiate a new letter of credit for 
each monthly disbursement.
    106. However, the Commission will require all winning bidders to 
provide a single letter of credit covering all of their winning bids 
within a single state. The Commission declines to allow multiple 
letters of credit that cover all bids in a state as it did for CAF 
Phase II, as this option was not used and is administratively 
burdensome on the Commission and USAC. Thus, a default in one census 
block could result in a draw on the entire letter of credit.
    107. As the Commission has previously recognized, it will again 
allow for the option of greater flexibility regarding letter of credit 
for Tribally owned and controlled winning bidders. Consistent with CAF 
Phase II, if any Tribally owned and controlled Rural Digital 
Opportunity Fund winning bidder is unable to obtain a letter of credit, 
it may file a petition for a waiver of the letter of credit 
requirement. Consistent with the Commission's precedent, waiver 
applicants must show, with evidence acceptable to them, that the 
Tribally owned and controlled

[[Page 13789]]

winning bidder is unable to obtain a letter of credit.
    108. The determinations the Commission reaches in this document 
take into consideration the comments submitted on the burdens 
associated with the letter of credit requirement. The Commission 
concludes, however, that the letter of credit requirement best protects 
the Fund. While the Commission understands that there are costs 
associated with the letter of credit, it continues to believe bidders 
can incorporate these costs when determining their strategies prior to 
the auction. The universal service program provides significant 
benefits when weighed against the costs of the letter of credits, which 
in turn provide significant security of public funding. As the 
Commission has previously stated, letters of credit have ``the added 
advantage of minimizing the possibility that the support becomes 
property of a recipient's bankruptcy estate for an extended period of 
time, thereby preventing the funds from being used promptly to 
accomplish the Commission's goals.''
    109. Commenters renewed requests for other safeguard measures, yet 
none of the measures fully guarantee that the Commission will be able 
to recover past support disbursements from a defaulting recipient. 
Several commenters suggested performance bonds or sureties. For 
example, WISPA and WTA assert the Commission should require auction 
winners to obtain performance bonds as an alternative to obtaining 
letters of credit, costing participants substantially less than a 
letter of credit. USTelecom agrees, commenting that the Commission 
should reconsider its proposals requiring Rural Digital Opportunity 
Fund winners to obtain a letter of credit as it is a substantial 
barrier to participation. Letters of credit, unlike performance bonds, 
allow for an immediate reclamation of support in the event the 
recipient is not properly using those funds. Performance bonds, on the 
other hand, would not provide the same level of protection and would 
require the involvement of a third party to adjudicate any disputes 
that arise, which would complicate the Commission processes and 
unnecessarily limit the authority of the Commission to allocate funds. 
A letter of credit, unlike a performance bond, has the benefit of the 
``independence principle'' in that the letter of credit is independent 
of the underlying transaction. The bank's obligation to pay under the 
letter of credit does not depend on the auction winner's default but on 
the presentation of documents evidencing the default. Being independent 
in this way assures that USAC can collect monies due to it promptly 
without engaging in disputes with the winning bidder, the performance 
bond guarantor or the winning bidder's trustee in bankruptcy over 
whether the funds should be paid or even whether the funds are 
available to the Fund due to competing claims of creditors.
    110. Similarly, Frontier and Windstream recommend placing money in 
escrow prior to bidding because they claim letters of credit are too 
expensive. The record also includes several comments opposing letter of 
credits or suggesting other means of protecting the Commission's 
interests. However, the Commission is not persuaded that escrow 
agreements, or other alternatives, would provide protection equal to 
the letters of credit that it now requires. Escrow agreements would put 
an amount of money with a third party who releases it when a 
contingency is satisfied. The auction winner would be a party to the 
escrow agreement, with the possibility that the support becomes the 
property of an auction winner's bankruptcy. Additionally, the auction 
winner would be required to place the same amount of funds in escrow as 
were disbursed by USAC, which could cause ``administrative burdens'' on 
the Commission and ``could potentially delay the auction.'' The 
Commission itself would need to create an escrow account, attain the 
money of all recipients, and manage and ensure proper payment to all 
recipients, an unnecessary and inefficient duplication of a system 
banks already have in place with letters of credit, with none of the 
advantages. Instead, the Commission can rely on the expertise of banks' 
experience in managing letters of credit, guaranteeing payment, and 
ensuring security for the Commission and ultimately the Fund. 
Therefore, the Commission declines to implement escrow accounts and 
maintain the letter of credit requirement.
    111. Finally, consistent with CAF Phase II, the Commission will 
require each winning bidder to submit a bankruptcy opinion letter from 
outside legal counsel. That opinion letter must clearly state, subject 
only to customary assumptions, limitations, and qualifications, that in 
a proceeding under the Bankruptcy Code, the bankruptcy court would not 
treat the letter of credit or proceeds of the letter of credit as 
property of the account party's bankruptcy estate, or the bankruptcy 
estate of any other competitive bidding process recipient-related 
entity requesting issuance of the letter of credit under section 541 of 
the Bankruptcy Code. The West Virginia Council argues that the 
bankruptcy opinion letter requirement is unduly burdensome and should 
be eliminated ``to accommodate non-traditional service providers like 
co-ops, non-profits, and government entities . . . .'' However, it is 
important to receive confirmation from each winning bidder that its 
letter of credit would not be consolidated in the estate. Therefore, 
the Commission declines to eliminate this requirement and concludes 
that the limited burden imposed on winning bidders to obtain this 
letter is outweighed by its policy goal to be fiscally responsible with 
finite universal service funds.
    112. The Commission next adopts rules that establish the framework 
under which a Rural Digital Opportunity Fund winning bidder will be 
subject to a forfeiture under section 503 of the Act if it defaults on 
its winning bid(s) before it is authorized to begin receiving support. 
A recipient will be considered in default and will be subject to 
forfeiture if it fails to timely file a long-form application, fails to 
meet the document submission deadlines outlined in this document, is 
found ineligible or unqualified to receive support, or otherwise 
defaults on its bid or is disqualified for any reason prior to the 
authorization of support. Consistent with CAF Phase II, a winning 
bidder will be subject to the base forfeiture for each separate 
violation of the Commission's rules.
    113. For Rural Digital Opportunity Fund competitive bidding 
purposes, the Commission defines a violation as any form of default 
with respect to each geographic unit subject to a bid. The Commission 
maintains that each violation should not be unduly punitive and expect 
the forfeiture to be proportionate to the overall scope of the winning 
bidder's bid. The Commission concludes that it is reasonable to subject 
all bidders to the same $3,000 base forfeiture per violation subject to 
adjustment based on the criteria set forth in its forfeiture 
guidelines. To determine the final forfeiture amount, the Commission's 
Enforcement Bureau will consider the ``nature, circumstances, extent 
and gravity of the violations.''

[[Page 13790]]

    114. No commenter specifically opposed the Commission's original 
proposal to establish the forfeiture owed for an auction default. 
However, Windstream characterized the CAF Phase II forfeiture as 
``modest'' and ``apparently insufficient to prevent [defaulters] from 
bidding.'' Windstream further noted that ``the forfeiture penalties 
proposed against [defaulters], which range from $1,242 to $30,000 did 
not deter these entities from bidding.'' USTelecom suggested that the 
Commission raise the base forfeitures, as the CAF Phase II base amounts 
were ``not substantial enough to dissuade'' uncommitted applicants from 
participating.
    115. The Commission agrees with commenters. Thus, to ensure that 
the amount of the base forfeiture is not disproportionate to the amount 
of an entity's bid, the Commission also limits the total base 
forfeiture to 15% of the bidder's total bid amount for the support 
term, which is an increase from the CAF Phase II auction limit of 5%. 
The Commission expects this will further ensure serious participation, 
without being overly burdensome and punitive to defaulters. As a 
condition of participating in the Rural Digital Opportunity Fund 
auction, entities will acknowledge that they are subject to a 
forfeiture in the event of an auction default. Thus, the Commission 
maintains that by adopting rules governing forfeitures for defaults, 
``the Commission will impress upon recipients the importance of being 
prepared to meet all its requirements for the post-selection review 
process, and emphasize the requirement that they conduct a due 
diligence review to ensure that they are qualified to participate in 
the . . . competitive bidding process and meet its terms and 
conditions.''

III. Rural Digital Opportunity Fund Transitions

    116. In this section, the Commission addresses several issues 
relating to the implementation of the Rural Digital Opportunity Fund in 
areas currently served by price cap carriers receiving either legacy 
high-cost or CAF Phase II model-based support. To ensure continuity of 
service for consumers, the Commission adopts specific support 
transition paths for census blocks served by these price cap carriers. 
The Commission also considers additional issues related to the 
transition from CAF Phase II model-based support to Rural Digital 
Opportunity Fund support, including the continuing responsibilities of 
incumbent price cap carriers no longer receiving support to serve 
specific areas.
    117. In the Rural Digital Opportunity Fund NPRM, the Commission 
sought comment on adopting a transition period methodology for 
incumbent price cap carriers receiving disaggregated legacy support 
similar to the approach employed following the CAF Phase II auction. 
Specifically, the Commission proposed that, in areas where an incumbent 
price cap carrier receives disaggregated legacy support and 
subsequently it or another provider becomes the authorized Rural 
Digital Opportunity Fund support recipient, the incumbent will cease 
receiving disaggregated legacy support on the first day of the month 
after it is authorized to receive Rural Digital Opportunity Fund 
support. In legacy high-cost support areas where no Rural Digital 
Opportunity Fund support is authorized, the Commission proposed 
allowing the incumbent to continue receiving disaggregated support 
until further Commission action. Finally, the Commission proposed 
ceasing disaggregated legacy support payments to incumbent carriers in 
any census block deemed ineligible for the Rural Digital Opportunity 
Fund on the first day of the month after the final Rural Digital 
Opportunity Fund eligible areas list is released.
    118. Likewise, the Commission sought comment on transitioning 
support in areas served by CAF Phase II model-based support recipients. 
In particular, the Commission asked whether these carriers should 
receive an additional seventh year of model-based support, given the 
potential timing of a Rural Digital Opportunity Fund auction, and, if 
so, whether that additional support should be made available to all 
carriers receiving model-based support or only a certain subset of 
those carriers. The Commission also sought comment on whether the 
seventh year of support should be modified in any way, including 
whether it should cover all of 2021 or just a portion of the year, as 
well as whether any additional obligations should be tied to this 
support. Finally, the Commission asked parties to highlight any 
additional issues related to the transition of support.
    119. Commenters broadly supported ensuring appropriate transitions 
to Rural Digital Opportunity Fund auction support and encouraged the 
Commission to affirm that all CAF Phase II model-based support 
recipients are entitled to a full seventh year of funding. In areas won 
by bidders in the Rural Digital Opportunity Fund auction, CenturyLink 
proposed that the Commission authorize all auction winners on January 
1, 2022, with legacy transition support and CAF Phase II model-based 
support continuing through that time. Frontier argued that, in areas 
where the Rural Digital Opportunity Fund auction winner is not the 
incumbent price cap carrier, the Commission must provide continued 
support to existing CAF Phase II providers to ensure continued voice 
and broadband services, proposing a six-year phase out of this support 
at periods equal to the inverse of the new provider's deployment 
milestones. ITTA also argued for continued support for the incumbent 
price cap carriers in these areas, but instead proposed that the 
incumbent receive support at the level of the winning bidder in the 
respective service area until the winning bidder is able to serve all 
the locations currently served by the incumbent. In areas where there 
is no Rural Digital Opportunity Fund auction winner, Frontier and ITTA 
encouraged the Commission to provide existing price cap carriers with 
sufficient support to continue providing broadband and voice service. 
USTelecom, Windstream, and ITTA further advocated for continued support 
to incumbent price cap carriers in areas where auction winners are not 
authorized by the end of 2021. Additionally, CenturyLink and NTCA 
proposed extending ongoing support in areas deemed ineligible for the 
Rural Digital Opportunity Fund. Other commenters highlighted the need 
for transitional support and encouraged the Commission to tie specific 
metrics or obligations to this support.
    120. For incumbent price cap carriers currently receiving support 
through the disaggregated legacy high-cost support mechanism, the 
Commission determines that adopting a transition to Rural Digital 
Opportunity Fund auction support that builds on the approach employed 
following the CAF Phase II auction will provide necessary clarity as it 
implements a new support mechanism. As the Commission noted when it 
adopted the transitions to CAF Phase II auction support, such an 
approach will ``protect customers of current support recipients from a 
potential loss of service, and minimize the disruption to recipients of 
frozen legacy support from a loss of funding'' while at the same time 
ensuring that finite universal service funds are used responsibly.
    121. First, in areas currently funded by disaggregated legacy 
support that are subsequently won in the Rural Digital Opportunity Fund 
auction by the incumbent price cap carrier, the incumbent will cease 
receiving

[[Page 13791]]

disaggregated legacy support on the first day of the month following 
its authorization to receive Rural Digital Opportunity Fund support. 
Likewise, in legacy high-cost support areas won in the Rural Digital 
Opportunity Fund auction by new providers, the incumbent will cease 
receiving disaggregated legacy support the first day of the month after 
the new ETC is authorized to receive such support. In these instances, 
the Commission believes it is appropriate to transition to the new 
support mechanism as soon as possible to ensure that finite support 
dollars are used most efficiently.
    122. The Commission recognizes that there may be eligible areas in 
the Rural Digital Opportunity Fund auction that see significant 
interest, but do not receive a winning bid. For these areas, the 
Commission revisits its prior approach of extending disaggregated 
legacy support on an interim basis until further Commission action. As 
the Commission previously noted, continued legacy support in auction-
eligible, high-cost areas was provided on an interim basis pending 
further Commission action. Thus, carriers receiving legacy support have 
been on notice that this support would not be provided in perpetuity. 
The Commission now concludes that price cap carriers receiving legacy 
support in areas that do not receive a winning bid will cease receiving 
such support on the first day of the month following the close of Phase 
I of the auction. These support amounts will instead be included as 
part of the budget for Phase II of the auction. The Commission also 
declines to extend additional support to these carriers to maintain 
fixed voice services in these areas. As the Commission's most recent 
data indicate, mobile voice subscriptions constitute almost 75% of the 
overall consumer voice subscriptions in the United States. Given the 
increasing ubiquity of fixed and mobile voice services, dedicating 
continued support for fixed voice services would be an inefficient use 
of the Commission's finite universal service dollars. Instead, the 
Commission concludes that directing support toward deploying more 
robust broadband services, rather than continuing to maintain current 
minimum service levels, is the best use of this funding. The Commission 
notes, however, that these areas will be included in Phase II of the 
Rural Digital Opportunity Fund auction and thus price cap carriers 
currently serving these areas will have the opportunity to bid on and 
again receive support to provide voice and broadband services in these 
areas.
    123. In all census blocks deemed ineligible for the Rural Digital 
Opportunity Fund auction, incumbent price cap carriers will no longer 
receive legacy support beginning the first day of the month following 
release of the final Rural Digital Opportunity Fund eligible areas list 
for Phase I of the auction. Because these areas will be excluded from 
Phase I of this auction, the Commission has determined that continued 
legacy support for these areas is no longer necessary. Thus, the 
Commission will cease distributing legacy support as soon as possible 
in order to preserve its finite universal service funds, instead 
focusing support to areas in the greatest need of broadband deployment.

            Transition of Price Cap Carriers' Legacy Support
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Won at auction by the          Receives legacy support until the first
 incumbent price cap carrier.   day of the month following its
                                authorization, then transitions to Rural
                                Digital Opportunity Fund support.
Won at auction by a new        Receives legacy support until the first
 provider.                      day of the month following the new
                                provider's authorization; new provider
                                then receives Rural Digital Opportunity
                                Fund support.
Not won at auction...........  Receives legacy support until the first
                                day of the month following close of the
                                auction.
Not eligible for auction.....  Receives legacy support until the first
                                day of the month following release of
                                the final eligible areas list.
------------------------------------------------------------------------

    124. Next, the Commission addresses support transitions in areas 
where incumbent price cap carriers currently receive CAF Phase II 
model-based support. As with the Commission's approach for legacy 
support transitions, it has attempted to strike a balance between 
properly allocating its finite resources and ensuring that consumers 
across the country have access to uninterrupted services. The 
Commission notes at the outset that it, in establishing the six-year 
term of support for model-based support recipients that would extend 
through 2020, intended to conduct a competitive bidding process in 
areas served by these carriers ``no later than the end of 2019 to 
ensure there is continuity and a transition path'' to the next support 
mechanism. Though the Commission did not meet this initial goal, it 
intends to conduct Phase I of the Rural Digital Opportunity Fund before 
the end of 2020. However, the Commission has learned from its 
experience with the CAF Phase II competitive bidding process that 
additional work will remain post-auction before winning bidders will be 
authorized to receive Rural Digital Opportunity Fund support and 
provide the required voice and broadband service. Because this work 
likely will stretch into 2021, the Commission revisits the previously 
established term of support for incumbent price cap carriers.
    125. In the December 2014 CAF Phase II Order, 80 FR 4446, January 
27, 2015, the Commission recognized the importance of providing a 
transition path between recipients of CAF Phase II model-based support 
and recipients of funding under a new support mechanism. Specifically, 
the Commission determined that it would offer incumbent price cap 
carriers the option of electing an additional year of support--through 
calendar year 2021--if they did not win at, or chose not to participate 
in, the subsequent competitive bidding process. Because of the timing 
considerations regarding Phase I of Rural Digital Opportunity Fund 
explained in this document, the Commission now determines that an 
additional seventh year for carriers receiving model-based support is 
necessary to ensure continuity in service for consumers and to provide 
a reasonable support glide path as it transitions from one support 
mechanism to another. This additional seventh year will not be limited 
to carriers that do not win in Phase I of the Rural Digital Opportunity 
Fund auction or carriers that do not participate in the auction; 
instead it will be available to all price cap carriers that elected the 
offer of model-based support in exchange for meeting defined service 
obligations. The Commission directs the Bureau to determine and 
implement a mechanism that will enable these price cap carriers to 
elect whether to receive an additional seventh year of support.
    126. The Commission clarifies that in census blocks where a price 
cap carrier elects not to receive a seventh year of model-based 
support, it is indicating that ongoing model-based support is not 
necessary to maintain voice and broadband services in these areas. 
Thus,

[[Page 13792]]

the carrier will receive no further support after the conclusion of its 
six-year term (i.e., December 31, 2020), even if these areas are 
eligible for the Rural Digital Opportunity Fund auction. Following 
Phase I of the auction, the provider authorized to receive funding in 
these areas--whether the incumbent price cap carrier or a new 
provider--will begin receiving Rural Digital Opportunity Fund support 
the first day of the month after it is authorized. For areas where no 
qualifying bid is received in Phase I of the Rural Digital Opportunity 
Fund auction, as well as for areas deemed ineligible for Phase I of the 
Rural Digital Opportunity Fund auction, the incumbent price cap 
carrier's model-based support will cease on December 31, 2020 and no 
further support will be provided in these areas.

  Transition for Price Cap Carriers in Areas Where a Carrier Declines a
                   Seventh Year of Model-Based Support
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Won at auction by the          Receives model-based support through
 incumbent price cap carrier.   2020; begins receiving Rural Digital
                                Opportunity Fund support the first day
                                of the month after it is authorized.
Won at auction by a new        Receives model-based support through
 provider.                      2020; new provider begins receiving
                                Rural Digital Opportunity Fund support
                                the first day of the month after it is
                                authorized.
Not won at auction...........  Receives model-based support through
                                2020.
Not eligible for auction.....  Receives model-based support through
                                2020.
------------------------------------------------------------------------

    127. In census blocks where a price cap carrier elects to receive a 
seventh year of model-based support, the Commission clarifies that the 
carrier will receive a full seventh calendar year of support--from 
January 2021 through December 2021--regardless of whether Rural Digital 
Opportunity Fund support is authorized in these areas in 2021. Thus, in 
areas where a price cap carrier currently receives model-based support 
that are subsequently won in the Rural Digital Opportunity Fund auction 
by a new provider, the incumbent price cap carrier will continue to 
receive model-based support through 2021, even if the new provider is 
authorized to receive Rural Digital Opportunity Fund support in 2021. 
The Commission concludes providing support to both the incumbent price 
cap carrier and the new Rural Digital Opportunity Fund provider in 
these areas for the limited duration of 2021 will help facilitate an 
appropriate transition to a new ETC. The Commission notes that price 
cap carriers receiving the seventh year of model-based support will 
``be required to continue providing broadband with performance 
characteristics that remain reasonably comparable to the performance 
characteristics of terrestrial fixed broadband service in urban 
America, in exchange for ongoing CAF Phase II support.''
    128. Similarly, in census blocks where a price cap carrier elects 
to receive a seventh year of model-based support and ultimately becomes 
the authorized Rural Digital Opportunity Fund support recipient, the 
price cap carrier will continue to receive support at its model-based 
levels through 2021, with Rural Digital Opportunity Fund support levels 
commencing in January 2022. The Commission declines to adopt 
USTelecom's proposal that incumbent price cap carriers be allowed to 
choose the greater of their model-based support or RDOF support amount 
to receive during the remainder of 2021. The Commission observes that 
the reserve price for the RDOF auction is based on the support amounts 
calculated by the model and likely will be bid down by participants in 
the auction. Thus, in most, if not all, cases a price cap carrier's 
model-based support amount will be greater than its Rural Digital 
Opportunity Fund support amount. Relatedly, in some instances, the 
incumbent price cap carrier may wish to expand its service area from 
its current CAF Phase II model-based supported areas and may bid on and 
be authorized to receive support in census blocks eligible for the 
Rural Digital Opportunity Fund that are adjacent to areas in which the 
carrier receives model-based support. Because the Commission expects 
the amount of model-based support that a carrier is receiving in a 
certain area to be higher than the amount of Rural Digital Opportunity 
Fund support it will receive, it expects these carriers to use the 
additional model-based support they receive in 2021 to begin the 
process of planning their buildouts for any adjacent, non-model-based 
support census blocks they may win.
    129. In auction-eligible census blocks where a price cap carrier 
elects to receive a seventh year of model-based support and no 
qualifying bid is received in Phase I of the Rural Digital Opportunity 
Fund auction, the incumbent price cap carrier will continue to receive 
model-based support until the end of 2021. At that point, no further 
support will be provided to carriers serving these areas. As the 
Commission previously noted, the state-level commitment procedure for 
incumbent price cap carriers was intended to be limited in scope and 
duration. Though the Commission is providing carriers with a potential 
seventh year of support, this option is limited in duration and, as 
previously contemplated by the Commission, is a ``a gradual transition 
to the elimination of support.'' The Commission therefore concludes 
that extending support in these areas beyond the seven-year term simply 
to maintain substandard broadband levels would be an inefficient use of 
its limited universal service funds. Moreover, providing additional 
support simply to maintain fixed voice services in these areas is an 
inefficient use of funding given the ubiquity of mobile voice services. 
Instead, the Commission determines that these funds should be aimed at 
deploying high-speed broadband networks in rural communities across the 
country.
    130. Likewise, census blocks where a price cap carrier elects to 
receive a seventh year of model-based support that are deemed 
ineligible for the Rural Digital Opportunity Fund auction will cease 
receiving model-based support at the end of 2021. Because the 
Commission, by excluding these blocks from Phase I of this auction, has 
determined that ongoing model-based support for these areas is no 
longer necessary, no further support will be provided to carriers 
serving these blocks after 2021. This approach is consistent with the 
Commission's decision to stop providing legacy support in areas deemed 
ineligible for both the CAF Phase II auction and the Rural Digital 
Opportunity Fund auction and allows funding to flow to areas in the 
greatest need of broadband deployment.

[[Page 13793]]



  Transition for Price Cap Carriers in Areas Where a Carrier Elects to
              Receive a Seventh Year of Model-Based Support
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Won at auction by the          Receives model-based support through
 incumbent price cap carrier.   2021; transitions to Rural Digital
                                Opportunity Fund support on January 1,
                                2022.
Won at auction by a new        Receives model-based support through
 provider.                      2021; new provider receives RDOF support
                                the first day of the month following
                                authorization.
Not won at auction...........  Receives model-based support through
                                2021.
Not eligible for auction.....  Receives model-based support through
                                2021.
------------------------------------------------------------------------

    131. Several commenters sought clarification from the Commission on 
the responsibilities of an incumbent price cap carrier once a new 
provider is authorized to receive Rural Digital Opportunity Fund 
support in an area previously served by the incumbent. Frontier 
contended that price cap carriers must be released from incumbent 
obligations, including the obligation to provide voice services, in 
areas where they cease to receive Rural Digital Opportunity Fund 
support. USTelecom proposed requiring Rural Digital Opportunity Fund 
auction winners to offer voice services beginning in the first month 
after they receive Rural Digital Opportunity Fund support. Likewise, 
Windstream and INCOMPAS stated that new providers should be able to 
provide voice service on day one of their support term. Commenters also 
encouraged the Commission to address additional issues regarding the 
responsibilities of price cap carriers no longer receiving support to 
serve specific areas. Conversely, some opposed commenters' requests to 
eliminate ETC obligations and preempt state and discontinuance 
requirements.
    132. The Commission previously addressed the issue of ETC 
obligations as funding transitions to new mechanisms. In the December 
2014 CAF Phase II Order, the Commission concluded that it was in the 
public interest to forbear, pursuant to section 10 of the 
Communications Act of 1934, as amended, from enforcing a federal high-
cost requirement that price cap carriers offer voice telephony service 
throughout their service areas pursuant to section 214(e)(1)(A) in 
three types of geographic areas: (1) Low-cost census blocks, (2) census 
blocks served by an unsubsidized competitor, as defined in the 
Commission's rules, offering voice and broadband at speeds of 10/1 Mbps 
to all eligible locations, and (3) census blocks where another ETC is 
receiving federal high-cost support to deploy modern networks capable 
of providing voice and broadband to fixed locations. At that time, the 
Commission also noted that price cap carriers would remain obligated to 
maintain existing voice service ``unless and until they receive 
authority under section 214(a) to discontinue that service.''
    133. The same limited circumstances that required the Commission to 
grant forbearance to price cap carriers from the federal high-cost 
requirement to offer voice services in certain areas also exist here. 
As a result, in areas where a new provider is granted ETC status and is 
authorized to receive Rural Digital Opportunity Fund support, the 
incumbent price cap carrier will be relieved of its federal high-cost 
ETC obligation to offer voice telephony services in that area. As the 
Commission explained when it initially granted such forbearance, 
because there is another ETC in these areas required to offer voice and 
broadband services to fixed locations that meet the Commission's public 
service obligations, it concludes that enforcement of the requirement 
that price cap carriers offer voice telephony in these areas ``is not 
necessary to ensure that the charges, practices, or classifications of 
price cap carriers are just and reasonable and not unjustly or 
unreasonably discriminatory in specific geographic areas.'' The 
Commission also clarifies that this forbearance applies to census 
blocks deemed ineligible for the Rural Digital Opportunity Fund by 
virtue of being served by an unsubsidized competitor.
    134. The Commission's decision to extend this limited forbearance 
to the Rural Digital Opportunity Fund context does not redefine price 
cap carriers' service areas or revoke price cap carriers' ETC 
designations in these areas. Thus, the Commission's action does not 
relieve ETCs of their other ``incumbent-specific obligations'' like 
interconnection and negotiating unbundled network elements pursuant to 
sections 251 and 252 of the Act. Moreover, these price cap carriers 
must continue to satisfy all Lifeline ETC obligations by offering voice 
telephony service to qualifying low-income households in areas in which 
they are subject to this limited forbearance. Finally, price cap 
carriers in these areas remain subject to other Title II requirements, 
including ensuring that voice telephony rates remain just and 
reasonable and the nondiscrimination obligations of sections 201 and 
202 of the Act. Additionally, the Commission declines to preempt any 
state regulations or obligations to which these carriers may be 
subject. Commenters make only vague, unsubstantiated claims about 
burdensome state obligations in support of these requests. Price cap 
carriers must continue to comply with state requirements, including 
carrier of last resort obligations, to the extent applicable. The 
Commission similarly defers to the states' judgment in assuring that 
the local rates that price cap carriers offer in the areas from which 
the Commission forbears remain just and reasonable. Price cap carriers 
will remain subject to ETC obligations other than those covered by the 
Commission's forbearance unless or until they relinquish their ETC 
designations in those areas pursuant to section 214(e)(4). As the 
Commission transitions to a new funding mechanism to further its goal 
of supporting the deployment of both voice and broadband-capable 
networks, the existing service areas and corresponding obligations will 
help preserve existing voice service for consumers until the Rural 
Digital Opportunity Fund is fully implemented, and ensure that even the 
most remote, extremely high-cost areas are served, consistent with the 
Commission's universal service goals and principles.
    135. More generally, price cap carriers must continue to maintain 
existing voice service until they receive discontinuance authority 
under section 214(a) of the Act and section 63.71 of the Commission's 
rules. As noted in this document, several commenters have requested 
that the Commission adopt a streamlined section 214 discontinuance 
process for price cap carriers that are replaced by a new provider 
receiving high-cost support. The Commission is not persuaded that such 
a process would benefit consumers in these areas. The Commission's 
discontinuance rules are designed to ensure that customers are fully 
informed of any proposed change that will reduce or end service, ensure 
appropriate oversight by the

[[Page 13794]]

Commission of such changes, and provide an orderly transition of 
service, as appropriate. This process allows the Commission to minimize 
harm to customers and to satisfy its obligation under the Act to 
protect the public interest.
    136. In evaluating a section 214 discontinuance application, the 
Commission generally considers a number of factors, including the 
existence, availability, and adequacy of alternatives. By examining 
these factors, the Commission can ensure that the removal of a voice 
service option from the marketplace occurs in a manner that respects 
consumer expectations and needs. Thus, the Commission will deny a 
discontinuance application if it would leave customers or other end 
users in the proposed area without the ability to receive voice service 
or a reasonable alternative, or if the public convenience and necessity 
would be otherwise adversely affected. In such circumstances, the 
Commission will require price cap carriers to continue offering voice 
telephony services in those areas in those instances where there is no 
reasonable alternative. The Commission notes that an authorization to 
receive Rural Digital Opportunity Fund support includes an expectation 
that the provider will offer a reasonable voice service alternative 
satisfying section 63.602(b) of the Commission's rules, but it will 
retain the discontinuance process to confirm that it is doing so. 
Adopting a streamlined process for areas in which the Commission grants 
limited forbearance would prevent them from conducting the thorough 
review process necessary to ensure whether appropriate alternatives are 
available to consumers or the present or future public convenience and 
necessity would be adversely affected by such a discontinuance.
    137. Finally, the Commission clarifies the specific timing to the 
grant of limited forbearance to incumbent price cap carriers that are 
replaced by a new provider. First, the Commission finds that these 
carriers will be relieved of their federal high-cost ETC obligation to 
offer voice telephony in specific census blocks on the first day of the 
month after a new ETC is authorized to receive Rural Digital 
Opportunity Fund support in those blocks. Thus, the new provider 
receiving Rural Digital Opportunity Fund support should be prepared to 
provide voice service throughout its service areas, either through its 
own facilities or a combination of its own and other ETC's facilities, 
on the first day of that month. Price cap carriers electing to receive 
a seventh year of model-based support will maintain their obligation to 
provide both voice and broadband service throughout 2021, as explained 
in this document. These carriers will be relieved of their federal 
high-cost ETC obligation to offer voice telephony in specific census 
blocks on January 1, 2022, regardless of when a new ETC is authorized 
to receive Rural Digital Opportunity Fund support. Finally, incumbent 
price cap carriers that decline a seventh year of model-based support 
will be relieved of the federal high-cost ETC obligation to offer voice 
telephony on the first day of the month after a new Rural Digital 
Opportunity Fund support recipient is authorized to receive support.

IV. Procedural Matters

A. Paperwork Reduction Act

    138. This document contains new and modified information collection 
requirements subject to the Paperwork Reduction Act of 1995 (PRA) 
Public Law 104-13. It will be submitted to the Office of Management and 
Budget (OMB) for review under section 3507(d) of the PRA. OMB, the 
general public, and other Federal agencies will be invited to comment 
on the new or modified information collection requirements contained in 
this proceeding. In addition, the Commission notes that pursuant to the 
Small Business Paperwork Relief Act of 2002, it previously sought 
specific comment on how the Commission might further reduce the 
information collection burden for small business concerns with fewer 
than 25 employees.

B. Congressional Review Act

    139. The Commission has determined, and the Administrator of the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, concurs that this rule is non-major under the Congressional 
Review Act, 5 U.S.C. 804(2). The Commission will send a copy of this 
Report and Order to Congress and the Government Accountability Office 
pursuant to 5 U.S.C. 801(a)(1)(A).
    140. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Rural Digital Opportunity Fund NPRM. The Commission 
sought written public comment on the proposals in the Rural Digital 
Opportunity Fund NPRM, including comment on the IRFA. The Commission 
did not receive any comments in response to this IRFA. This Final 
Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
    141. Bringing digital opportunity to Americans living on the wrong 
side of the digital divide continues to be the Federal Communication 
Commission's top priority. It is imperative that the Commission take 
prompt and expeditious action to deliver on its goal of connecting all 
Americans, no matter where they live and work. Without access to 
broadband, rural communities cannot connect to the digital economy and 
the opportunities for better education, employment, healthcare, and 
civic and social engagement it provides.
    142. In recent years, the Commission has made tremendous strides 
toward its goal of making broadband available to all Americans. But 
while the digital divide is closing, more work remains to be done. 
Therefore, in this Order, the Commission adopts the framework for the 
Rural Digital Opportunity Fund. It builds on the successful model from 
2018's Connect America Fund (CAF) Phase II auction, which allocated 
$1.488 billion to deploy networks serving more than 700,000 unserved 
rural homes and businesses across 45 states. The Rural Digital 
Opportunity Fund represents the Commission's single biggest step to 
close the digital divide by providing up to $20.4 billion to connect 
millions more rural homes and small businesses to high-speed broadband 
networks. It will ensure that networks stand the test of time by 
prioritizing higher network speeds and lower latency, so that those 
benefitting from these networks will be able to use tomorrow's internet 
applications as well as today's.
    143. The RFA directs agencies to provide a description of, and 
where feasible, an estimate of the number of small entities that may be 
affected by the rules adopted herein. The RFA generally defines the 
term ``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small-business concern'' under the Small Business 
Act. A ``small-business concern'' is one which: (1) Is independently 
owned and operated; (2) is not dominant in its field of operation; and 
(3) satisfies any additional criteria established by the SBA.
    144. The Commission's actions, over time, may affect small entities 
that are not easily categorized at present. The Commission therefore 
describes here, at the outset, three comprehensive small entity size 
standards that could be directly affected herein. First, while there 
are industry specific size standards for small businesses that are used 
in the regulatory flexibility analysis, according to data from the

[[Page 13795]]

SBA's Office of Advocacy, in general a small business is an independent 
business having fewer than 500 employees. These types of small 
businesses represent 99.9% of all businesses in the United States which 
translates to 28.8 million businesses.
    145. Next, the type of small entity described as a ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of August 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).
    146. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, towns, 
townships, villages, school districts, or special districts, with a 
population of less than fifty thousand.'' U.S. Census Bureau data from 
the 2012 Census of Governments indicate that there were 90,056 local 
governmental jurisdictions consisting of general purpose governments 
and special purpose governments in the United States. Of this number 
there were 37,132 General purpose governments (county, municipal and 
town or township) with populations of less than 50,000 and 12,184 
Special purpose governments (independent school districts and special 
districts) with populations of less than 50,000. The 2012 U.S. Census 
Bureau data for most types of governments in the local government 
category show that the majority of these governments have populations 
of less than 50,000. Based on this data the Commission estimates that 
at least 49,316 local government jurisdictions fall in the category of 
``small governmental jurisdictions.''
    147. Small entities potentially affected by the rules herein 
include Wireline Providers, Wireless Providers (except Satellite), 
internet Service Providers (Broadband), Satellite Telecommunications, 
Electric Power Generators, Transmitters, and Distributors and All Other 
Telecommunications.
    148. In the Order the Commission adopts rules that will apply in 
the Rural Digital Opportunity Fund auction. The Commission establishes 
four technology-neutral tiers of bids available for bidding with 
varying broadband speed and usage allowances, and for each tier will 
differentiate between bids that would offer either lower or higher 
latency. Like all high-cost ETCs, the Commission requires that Rural 
Digital Opportunity Fund recipients offer standalone voice service and 
offer voice and broadband service meeting the relevant performance 
requirements at rates that are reasonably comparable to rates offered 
in urban areas. All ETCs must advertise the availability of their voice 
services through their service areas, and the Commission requires 
support recipients also to advertise the availability of their 
broadband services within their service area. Rural Digital Opportunity 
Fund support recipients will also be subject to the same uniform 
framework for measuring speed and latency performance along with the 
accompanying compliance framework as all other recipients of high-cost 
support required to serve fixed locations.
    149. In the Order, the Commission adopts a 10-year support term for 
Rural Digital Opportunity Fund support recipients along with interim 
service milestones by which support recipients must offer the required 
voice and broadband service to a required number of locations. The 
final service milestones will differ based on whether the Bureau 
determines that there are more or fewer locations than initially 
determined by the Connect America Cost Model. Rural Digital Opportunity 
Fund recipients must also offer service to newly built locations upon 
reasonable request if those locations were built before milestone year 
eight.
    150. For entities that are interested in participating in the Rural 
Digital Opportunity Fund, adopted a two-step application process. The 
Commission requires applicants to submit a pre-auction short-form 
application that includes information regarding their ownership, 
technical and financial qualifications, the technologies they intend to 
use and the types of bids they intend to place, their operational 
history, and an acknowledgement of their responsibility to conduct due 
diligence. Commission staff will review the applications to determine 
if applicants are qualified to bid in the auction.
    151. The Commission also requires winning bidders to submit a long-
form application in which they will submit information about their 
qualifications, funding, and the networks they intend to use to meet 
their obligations. During the long-form application period, the 
Commission will require long-form applicants to obtain an ETC 
designation from the state or the Commission as relevant that covers 
the eligible areas in their winning bids. Prior to being authorized to 
receive support, the Commission will require long-form applicants to 
obtain an irrevocable stand-by letter of credit that meets its 
requirements from an eligible bank along with a bankruptcy opinion 
letter. The amount of support the letter of credit must cover will vary 
based on whether the support recipient has met certain service 
milestones. Commission staff will review the applications and submitted 
documentation to determine whether long-form applicants are qualified 
to be authorized to receive support. The Commission will subject 
winning bidders or long-form applicants that default during the long-
form application process to forfeiture.
    152. To monitor the use of Rural Digital Opportunity Fund support 
to ensure that it is being used for its intended purposes, the 
Commission will require support recipients to file location and 
technology data on an annual basis in the online High Cost Universal 
Broadband (HUBB) portal and to make certifications when they have met 
their service milestones. The Commission also will require applicants 
to file certain information in their annual FCC Form 481 reports 
including information regarding the community anchor institutions they 
serve, the support they used for capital expenditures, and 
certifications regarding meeting the Commission's performance 
obligations and available funds. Support recipients will also be 
subject to the annual section 54.314 certifications, the same record 
retention and audit requirements, and the same support reductions for 
untimely filings as other high-cost ETCs.
    153. For support recipients that do not meet their Rural Digital 
Opportunity Fund obligations, the Commission will subject such support 
recipients to the framework for support reductions that is applicable 
to all high-cost ETCs that are required to meet defined service 
milestones and to the process the Commission adopted for drawing on 
letters of credit for the CAF Phase II auction, subject to some 
modifications regarding the amount of support that will be recovered 
after the sixth and eighth service milestones, as applicable. 
Additionally, if a Rural Digital Opportunity Fund support recipient 
believes it cannot meet the 40% service milestone, it must notify the 
Bureau and provide information explaining this expected deficiency. If 
a support recipient has not made such a notification and has deployed 
to fewer than 20% of the required number of locations by the third year 
service milestone, the Commission will find the recipient to be default 
rather than withholding the support and giving the support recipient an 
additional year to come into compliance. Support recipients may also 
seek waiver if as

[[Page 13796]]

they are deploying their networks there are not enough locations to 
meet their interim milestones.
    154. The Commission also adopts specific support transition paths 
for census blocks served by price cap carriers receiving both legacy 
high-cost and model-based support, including delegating to the Wireline 
Competition Bureau the task of determining and implementing a mechanism 
that will enable price cap carriers to elect whether to receive an 
additional, seventh year of Phase II model-based support. Additionally, 
the Commission clarifies the continuing responsibilities of price cap 
carriers no longer receiving support to serve specific areas.
    155. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its approach, which may 
include the following four alternatives, among others: ``(1) the 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.''
    156. The Commission has considered the economic impact on small 
entities in reaching its final conclusions and taking action in this 
proceeding. The rules that the Commission adopts in the Order will 
provide greater certainty and flexibility for all carriers, including 
small entities. For example, the Commission adopts different 
performance standards for bidders to maximize the types of entities 
that can participate in the Rural Digital Opportunity Fund auction. 
Additionally, while the Commission declines to adopt any bidding 
credits, it does incorporate into the reserve prices for Tribal areas a 
Tribal Broadband Factor to provide an incentive for service providers, 
including small entities, to bid on and serve Tribal lands.
    157. The Commission also expects that the minimum geographic area 
for bidding will be a census block group containing one or more 
eligible census blocks, but reserve the right to select census tracts 
when the Commission finalizes the auction design if necessary to limit 
the number of discrete biddable units. The Commission finds that this 
approach is preferable because it ensures that all interested bidders, 
including small entities, have flexibility to design a network that 
matches their business model and the technologies they intend to use. 
The Commission declines to adopt census blocks as the minimum 
geographic unit because there are significantly more eligible census 
blocks, increasing the complexity of the bidding process both for 
bidders, including small entities, and the bidding system and 
minimizing the potential for broad coverage by winning bidders.
    158. The Commission declines to adopt a resource-intensive 
challenge process and instead have decided to rely on FCC Form 477 data 
and conduct a more streamlined challenge process to determine areas 
that are eligible for the Rural Digital Opportunity Fund auction. This 
means that service providers, including small entities, will have to 
file a FCC Form 477 as they are already required to do to ensure that 
the areas they serve are not overbuilt. Through the challenge process, 
interested parties may also identify areas that have been served since 
they have submitted the most recent publicly available FCC Form 477 
data or identify areas that have been awarded funding through federal 
or state broadband subsidy programs to provide 25/3 Mbps or better 
service.
    159. Based on lessons learned from the CAF Phase II auction, the 
Commission also adopts a two-step application process that will allow 
entities interested in bidding to submit a short-form application to be 
qualified in the auction that it found to be an appropriate but not 
burdensome screen to ensure participation by qualified providers, 
including small entities. Only if an applicant becomes a winning bidder 
will it be required to submit a long-form application which requires a 
more thorough review of an applicant's qualifications to be authorized 
to receive support. Like the CAF Phase II auction, the Commission 
provides two pathways for eligibility for the auction--both (1) for 
entities that have at least two years' experience providing a voice, 
broadband, and/or electric transmission or distribution service, and 
(2) for entities that have at least three years of audited financials 
and can obtain an acceptable letter of interest from an eligible bank. 
The Commission expects that by proposing to adopt two pathways for 
eligibility and to permit experienced entities that do not audit their 
financial statements in the ordinary course of business to wait to 
submit audited financials until after they are announced as winning 
bidders, more small entities will be able to participate in the 
auction. The Commission declines to collect less financial and 
technical information from experienced providers, finding that all 
existing service providers are not necessarily qualified to bid for 
additional universal service support and that the passage of time since 
its last review may impact qualifications. At the same time, the 
Commission also declines to require more detailed technical and 
operational showings as suggested by some commenters because it found 
these proposals would provide significant barriers to entry for 
participation by interested entities, including small entities.
    160. The Commission also permits all long-form applicants, 
including small entities, to obtain their ETC designations after 
becoming winning bidders so that they do not have to go through the ETC 
designation process prior to finding out if they won support through 
the auction. The Commission declines to adopt the alternatives to 
letters of credit that were suggested by commenters because letters of 
credit better achieve the Commission's objective of protecting the 
public's funds. But recognizing that some CAF Phase II auction 
participants, including small entities, have expressed concerns about 
the costs of obtaining and maintaining a letter of credit, the 
Commission makes a modification to its requirements to allow support 
recipients to cover less support with their letters of credit and 
further reduce the value of their letters of credit once it has been 
verified that they have met certain service milestones.
    161. The Commission declines to adopt additional performance 
requirements, like requiring specific subscription milestones, because 
it finds that they are likely to discourage many bidders, including 
small entities, from participating in the auction because they would 
risk losing funding in areas with low subscribership rates. The 
Commission also declines to adopt more aggressive service milestones 
and instead explain that entities with smaller projects have the 
opportunity to build-out faster than the service milestones.
    162. The reporting requirements the Commission adopts for all Rural 
Digital Opportunity Fund support recipients are tailored to ensuring 
that support is used for its intended purpose and so that the 
Commission can monitor the progress of recipients in meeting their 
service milestones. The Commission finds that the importance of 
monitoring the use of the public's funds outweighs the burden of filing 
the required information on all entities, including small entities, 
particularly because much of the information that the Commission 
requires they report is

[[Page 13797]]

information the Commission expects they will already be collecting to 
ensure they comply with the terms and conditions of support and they 
will be able to submit their location data on a rolling basis to help 
minimize the burden of uploading a large number of locations at once.

V. Ordering Clauses

    163. Accordingly, it is ordered, pursuant to the authority 
contained in sections 4(i), 214, 254, 303(r), and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 254, 
303(r), and 403, and Sec. Sec.  1.1 and 1.425 of the Commission's 
rules, 47 CFR 1.1 and 1.425 this Report and Order is adopted. The 
Report and Order shall be effective 30 days after publication in the 
Federal Register, except for portions containing information collection 
requirements in Sec. Sec.  54.313, 54.316, 54.804, and 54.806 that have 
not been approved by OMB. The Federal Communications Commission will 
publish a document in the Federal Register announcing the effective 
date of these provisions.
    164. It is further ordered that Part 54 of the Commission's rules 
is amended as set forth in the following, and that any such rule 
amendments that contain new or modified information collection 
requirements that require approval by the Office of Management and 
Budget under the Paperwork Reduction Act shall be effective after 
announcement in the Federal Register of Office of Management and Budget 
approval of the rules, and on the effective date announced therein.

List of Subjects in 47 CFR Part 54

    Communications common carriers, Health facilities, Infants and 
children, internet, Libraries, Reporting and recordkeeping 
requirements, Schools, Telecommunications, Telephone.

Federal Communications Commission.
Marlene Dortch,
Secretary, Office of the Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

0
1. The authority citation for part 54 continues to read as follows:

    Authority:  47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 
229, 254, 303(r), 403, 1004, and 1302, unless otherwise noted.

0
2. Amend Sec.  54.310 by adding paragraphs (g) and (h) to read as 
follows:


Sec.  54.310  Connect America Fund for Price Cap Territories--Phase II.

* * * * *
    (g) Extended term of model-based support. Eligible 
telecommunications carriers receiving model-based support may elect to 
receive a seventh year of such support. An eligible telecommunications 
carrier electing to receive this additional year of support makes a 
state-level commitment to maintain the required voice and broadband 
services in the areas for which it receives support during this 
extended term. The Wireline Competition Bureau will implement a 
mechanism to enable an eligible telecommunications carrier to elect 
whether to receive an additional seventh year of support.
    (h) Transition to Rural Digital Opportunity Fund support. (1) In 
areas where the eligible telecommunications carrier elects to receive 
an optional seventh year of model-based support pursuant to paragraph 
(g) of this section, it shall receive such support for a full calendar 
year, regardless of the disposition of these areas in the Rural Digital 
Opportunity Fund auction.
    (i) If the eligible telecommunications carrier becomes the winning 
bidder in the Rural Digital Opportunity Fund auction in these areas, it 
shall continue to receive model-based support through December 31, 
2021. Thereafter, it shall receive monthly support in the amount of its 
Rural Digital Opportunity Fund winning bid.
    (ii) If another provider is the winning bidder in the Rural Digital 
Opportunity Fund auction in these areas, the new provider shall receive 
monthly support in the amount of its Rural Digital Opportunity Fund 
winning bid starting the first day of the month following its 
authorization by the Wireline Competition Bureau. The eligible 
telecommunications carrier shall continue to receive model-based 
support for these areas through December 31, 2021.
    (iii) If there is no authorized Rural Digital Opportunity Fund 
auction support recipient in these areas or if these areas are deemed 
ineligible for the Rural Digital Opportunity Fund auction, the eligible 
telecommunications carrier shall continue to receive model-based 
support for these areas through December 31, 2021. Thereafter, it shall 
receive no additional support.
    (2) In areas where the eligible telecommunications carrier declines 
to receive an optional seventh year of model-based support pursuant to 
paragraph (g) of this section, it shall cease receiving model-based 
support for these areas on December 31, 2020.

0
3. Amend Sec.  54.312 by adding paragraph (e) to read as follows:


Sec.  54.312  Connect America Fund for Price Cap Territories--Phase I.

* * * * *
    (e) Eligibility for support after Rural Digital Opportunity Fund 
auction. (1) A price cap carrier that receives monthly baseline support 
pursuant to this section and is a winning bidder in the Rural Digital 
Opportunity Fund auction shall receive support at the same level as 
described in paragraph (a) of this section for such area until the 
Wireline Competition Bureau determines whether to authorize the carrier 
to receive Rural Digital Opportunity Fund auction support for the same 
area. Upon the Wireline Competition Bureau's release of a public notice 
approving a price cap carrier's application submitted pursuant to Sec.  
54.315(b) and authorizing the carrier to receive Rural Digital 
Opportunity Fund auction support, the carrier shall no longer receive 
support at the level of monthly baseline support pursuant to this 
section for such area. Thereafter, the carrier shall receive monthly 
support in the amount of its Rural Digital Opportunity Fund winning 
bid.
    (2) Starting the first day of the month following the release of 
the final eligible areas list for the Rural Digital Opportunity Fund 
auction, as determined by the Wireline Competition Bureau, no price cap 
carrier that receives monthly baseline support pursuant to this section 
shall receive such monthly baseline support for areas that are 
ineligible for the Rural Digital Opportunity Fund auction.
    (3) Starting the first day of the month following the close of 
Phase I of the Rural Digital Opportunity Fund auction, no price cap 
carrier that receives monthly baseline support pursuant to this section 
shall receive such monthly baseline support for areas where Rural 
Digital Opportunity Fund auction support is not awarded at auction for 
an eligible area.
    (4) Starting the first day of the month following the authorization 
of Rural Digital Opportunity Fund auction support to a winning bidder 
other than the price cap carrier that receives monthly baseline support 
pursuant to this section for such area, the price cap carrier shall no 
longer receive monthly baseline support pursuant to this section.

0
4. Amend Sec.  54.313 by revising paragraphs (e) introductory text, 
(e)(2) introductory text and (e)(2)(iii) to read as follows:

[[Page 13798]]

Sec.  54.313  Annual reporting requirements for high-cost recipients.

* * * * *
    (e) In addition to the information and certifications in paragraph 
(a) of this section, the requirements in paragraphs (e)(1) and (2) of 
this section apply to recipients of Phase II, Rural Digital Opportunity 
Fund, Uniendo a Puerto Rico Fund Stage 2 fixed support, and Connect 
USVI Fund Stage 2 fixed support:
* * * * *
    (2) Any recipient of Phase II, Rural Digital Opportunity Fund, 
Uniendo a Puerto Rico Fund Stage 2 fixed, or Connect USVI Fund Stage 2 
fixed support awarded through a competitive bidding or application 
process shall provide:
* * * * *
    (iii) Starting the first July 1st after meeting the final service 
milestone in Sec.  54.310(c) or Sec.  54.802(c) of this chapter until 
the July 1st after the Phase II recipient's or Rural Digital 
Opportunity Fund recipient's support term has ended, a certification 
that the Phase II-funded network that the Phase II auction recipient 
operated in the prior year meets the relevant performance requirements 
in Sec.  54.309 of this chapter, or that the network that the Rural 
Digital Opportunity Fund recipient operated in the prior year meets the 
relevant performance requirements in Sec.  54.805 for the Rural Digital 
Opportunity Fund.
* * * * *

0
5. Amend Sec.  54.316 by revising paragraph (a)(4), adding paragraph 
(a)(8), and revising paragraphs (b)(5) and (c)(1) to read as follows:


Sec.  54.316  Broadband deployment reporting and certification 
requirements for high-cost recipients.

    (a) * * *
    (4) Recipients subject to the requirements of Sec.  54.310(c) shall 
report the number of locations for each state and locational 
information, including geocodes, where they are offering service at the 
requisite speeds. Recipients of Connect America Phase II auction 
support shall also report the technology they use to serve those 
locations.
* * * * *
    (8) Recipients subject to the requirements of Sec.  54.802(c) shall 
report the number of locations for each state and locational 
information, including geocodes, where they are offering service at the 
requisite speeds. Recipients of Rural Digital Opportunity Fund support 
shall also report the technology they use to serve those locations.
    (b) * * *
    (5) Recipients of Rural Digital Opportunity Fund support shall 
provide: No later than March 1 following each service milestone 
specified by the Commission, a certification that by the end of the 
prior support year, it was offering broadband meeting the requisite 
public interest obligations to the required percentage of its supported 
locations in each state.
* * * * *
    (c) * * *
    (1) Price cap carriers that accepted Phase II model-based support, 
rate-of-return carriers, and recipients of Rural Digital Opportunity 
Fund support must submit the annual reporting information required by 
March 1 as described in paragraphs (a) and (b) of this section. 
Eligible telecommunications carriers that file their reports after the 
March 1 deadline shall receive a reduction in support pursuant to the 
following schedule:
* * * * *

0
6. Revise subpart J to read as follows:
Subpart J--Rural Digital Opportunity Fund
Sec.
54.801 Use of competitive bidding for Rural Digital Opportunity 
Fund.
54.802 Rural Digital Opportunity Fund geographic areas, deployment 
obligations, and support disbursements.
54.803 Rural Digital Opportunity Fund provider eligibility.
54.804 Rural Digital Opportunity Fund application process.
54.805 Rural Digital Opportunity Fund public interest obligations.
54.806 Rural Digital Opportunity Fund reporting obligations, 
compliance, and recordkeeping.

Subpart J--Rural Digital Opportunity Fund


Sec.  54.801   Use of competitive bidding for Rural Digital Opportunity 
Fund.

    The Commission will use competitive bidding, as provided in part 1, 
subpart AA of this chapter, to determine the recipients of Rural 
Digital Opportunity Fund support and the amount of support that they 
may receive for specific geographic areas, subject to applicable post-
auction procedures.


Sec.  54.802  Rural Digital Opportunity Fund geographic areas, 
deployment obligations, and support disbursements.

    (a) Geographic areas eligible for support. Rural Digital 
Opportunity Fund support may be made available for census blocks or 
other areas identified as eligible by public notice.
    (b) Term of support. Rural Digital Opportunity Fund support shall 
be provided for ten years.
    (c) Deployment obligation. (1) All recipients of Rural Digital 
Opportunity Fund support must complete deployment to 40 percent of the 
required number of locations as determined by the Connect America Cost 
Model by the end of the third year, to 60 percent by the end of the 
fourth year, and to 80 percent by the end of the fifth year. The 
Wireline Competition Bureau will publish updated location counts no 
later than the end of the sixth year. A support recipient's final 
service milestones will depend on whether the Wireline Competition 
Bureau determines there are more or fewer locations than determined by 
the Connect America Cost Model in the relevant areas as follows:
    (i) More Locations. After the Wireline Competition Bureau adopts 
updated location counts, in areas where there are more locations than 
the number of locations determined by the Connect America Cost Model, 
recipients of Rural Digital Opportunity Fund support must complete 
deployment to 100 percent of the number of locations determined by the 
Connect America Cost Model by the end of the sixth year. Recipients of 
Rural Digital Opportunity Fund support must then complete deployment to 
100 percent of the additional number of locations determined by the 
Wireline Competition Bureau's updated location count by end of the 
eighth year. If the new location count exceeds 35% of the number of 
locations determined by the Connect America Cost Model within their 
area in each state, recipients of Rural Digital Opportunity Fund 
support will have the opportunity to seek additional support or relief.
    (ii) Fewer Locations. In areas where there are fewer locations than 
the number of locations determined by the Connect America Cost Model, a 
Rural Digital Opportunity Fund support recipient must notify the 
Wireline Competition Bureau no later than March 1 following the fifth 
year of deployment. Upon confirmation by the Wireline Competition 
Bureau, Rural Digital Opportunity Fund support recipients must complete 
deployment to the number of locations required by the new location 
count by the end of the sixth year. Support recipients for which the 
new location count is less than 65 percent of the Connect America Cost 
Model locations within their area in each state shall have the support 
amount reduced on a pro rata basis by the number of reduced locations.
    (iii) Newly Built Locations. In addition to offering the required 
service to the updated number of locations identified by the Wireline 
Competition Bureau, Rural Digital Opportunity Fund support

[[Page 13799]]

recipients must offer service to locations built since the revised 
count, upon reasonable request. Support recipients are not required to 
deploy to any location built after milestone year eight.
    (d) Disbursement of Rural Digital Opportunity Fund funding. An 
eligible telecommunications carrier will be advised by public notice 
when it is authorized to receive support. The public notice will detail 
how disbursements will be made.


Sec.  54.803  Rural Digital Opportunity Fund provider eligibility.

    (a) Any eligible telecommunications carrier is eligible to receive 
Rural Digital Opportunity Fund support in eligible areas.
    (b) An entity may obtain eligible telecommunications carrier 
designation after public notice of winning bidders in the Rural Digital 
Opportunity Fund auction.
    (c) To the extent any entity seeks eligible telecommunications 
carrier designation prior to public notice of winning bidders for Rural 
Digital Opportunity Fund support, its designation as an eligible 
telecommunications carrier may be conditioned subject to receipt of 
Rural Digital Opportunity Fund support.
    (d) Any Connect America Phase II auction participant that defaulted 
on all of its Connect America Phase II auction winning bids is barred 
from participating in the Rural Digital Opportunity Fund.


Sec.  54.804  Rural Digital Opportunity Fund application process.

    (a) In addition to providing information specified in Sec.  
1.21001(b) of this chapter and any other information required by the 
Commission, any applicant to participate in competitive bidding for 
Rural Digital Opportunity Fund support shall:
    (1) Provide ownership information as set forth in Sec.  1.2112(a) 
of this chapter;
    (2) Certify that the applicant is financially and technically 
qualified to meet the public interest obligations established for Rural 
Digital Opportunity Fund support;
    (3) Disclose its status as an eligible telecommunications carrier 
to the extent applicable and certify that it acknowledges that it must 
be designated as an eligible telecommunications carrier for the area in 
which it will receive support prior to being authorized to receive 
support;
    (4) Describe the technology or technologies that will be used to 
provide service for each bid;
    (5) Submit any information required to establish eligibility for 
any bidding weights adopted by the Commission in an order or public 
notice;
    (6) To the extent that an applicant plans to use spectrum to offer 
its voice and broadband services, demonstrate it has the proper 
authorizations, if applicable, and access to operate on the spectrum it 
intends to use, and that the spectrum resources will be sufficient to 
cover peak network usage and deliver the minimum performance 
requirements to serve all of the fixed locations in eligible areas, and 
certify that it will retain its access to the spectrum for the term of 
support;
    (7) Submit operational and financial information.
    (i) If applicable, the applicant should submit a certification that 
it has provided a voice, broadband, and/or electric transmission or 
distribution service for at least two years or that it is a wholly-
owned subsidiary of such an entity, and specifying the number of years 
the applicant or its parent company has been operating, and submit the 
financial statements from the prior fiscal year that are audited by an 
independent certified public accountant. If the applicant is not 
audited in the ordinary course of business, in lieu of submitting 
audited financial statements it must submit unaudited financial 
statements from the prior fiscal year and certify that it will provide 
financial statements from the prior fiscal year that are audited by an 
independent certified public accountant by a specified deadline during 
the long-form application review process.
    (A) If the applicant has provided a voice and/or broadband service 
it must certify that it has filed FCC Form 477s as required during this 
time period.
    (B) If the applicant has operated only an electric transmission or 
distribution service, it must submit qualified operating or financial 
reports that it has filed with the relevant financial institution for 
the relevant time period along with a certification that the submission 
is a true and accurate copy of the reports that were provided to the 
relevant financial institution.
    (ii) If an applicant cannot meet the requirements in paragraph 
(a)(7)(i) of this section, in the alternative it must submit the 
audited financial statements from the three most recent fiscal years 
and a letter of interest from a bank meeting the qualifications set 
forth in paragraph (c)(2) of this section, that the bank would provide 
a letter of credit as described in paragraph (c) of this section to the 
bidder if the bidder were selected for bids of a certain dollar 
magnitude.
    (8) Certify that the applicant has performed due diligence 
concerning its potential participation in the Rural Digital Opportunity 
Fund.
    (b) Application by winning bidders for Rural Digital Opportunity 
Fund support--
    (1) Deadline. As provided by public notice, winning bidders for 
Rural Digital Opportunity Fund support or their assignees shall file an 
application for Rural Digital Opportunity Fund support no later than 
the number of business days specified after the public notice 
identifying them as winning bidders.
    (2) Application contents. An application for Rural Digital 
Opportunity Fund support must contain:
    (i) Identification of the party seeking the support, including 
ownership information as set forth in Sec.  1.2112(a) of this chapter;
    (ii) Certification that the applicant is financially and 
technically qualified to meet the public interest obligations for Rural 
Digital Opportunity Fund support in each area for which it seeks 
support;
    (iii) Certification that the applicant will meet the relevant 
public interest obligations, including the requirement that it will 
offer service at rates that are equal or lower to the Commission's 
reasonable comparability benchmarks for fixed wireline services offered 
in urban areas;
    (iv) A description of the technology and system design the 
applicant intends to use to deliver voice and broadband service, 
including a network diagram which must be certified by a professional 
engineer. The professional engineer must certify that the network is 
capable of delivering, to at least 95 percent of the required number of 
locations in each relevant state, voice and broadband service that 
meets the requisite performance requirements for Rural Digital 
Opportunity Fund support;
    (v) Certification that the applicant will have available funds for 
all project costs that exceed the amount of support to be received from 
the Rural Digital Opportunity Fund for the first two years of its 
support term and that the applicant will comply with all program 
requirements, including service milestones;
    (vi) A description of how the required construction will be funded, 
including financial projections that demonstrate the applicant can 
cover the necessary debt service payments over the life of the loan, if 
any;
    (vii) Certification that the party submitting the application is 
authorized to do so on behalf of the applicant; and
    (viii) Such additional information as the Commission may require.
    (3) Letter of credit commitment letter. No later than the number of 
days

[[Page 13800]]

provided by public notice, the long-form applicant shall submit a 
letter from a bank meeting the eligibility requirements outlined in 
paragraph (c) of this section committing to issue an irrevocable stand-
by letter of credit, in the required form, to the long-form applicant. 
The letter shall at a minimum provide the dollar amount of the letter 
of credit and the issuing bank's agreement to follow the terms and 
conditions of the Commission's model letter of credit.
    (4) Audited financial statements. No later than the number of days 
provided by public notice, if a long-form applicant or a related entity 
did not submit audited financial statements in the relevant short-form 
application as required, the long-form applicant must submit the 
financial statements from the prior fiscal year that are audited by an 
independent certified public accountant.
    (5) Eligible telecommunications carrier designation. No later than 
180 days after the public notice identifying it as a winning bidder, 
the long-form applicant shall certify that it is an eligible 
telecommunications carrier in any area for which it seeks support and 
submit the relevant documentation supporting that certification.
    (6) Application processing. (i) No application will be considered 
unless it has been submitted in an acceptable form during the period 
specified by public notice. No applications submitted or demonstrations 
made at any other time shall be accepted or considered.
    (ii) Any application that, as of the submission deadline, either 
does not identify the applicant seeking support as specified in the 
public notice announcing application procedures or does not include 
required certifications shall be denied.
    (iii) An applicant may be afforded an opportunity to make minor 
modifications to amend its application or correct defects noted by the 
applicant, the Commission, the Administrator, or other parties. Minor 
modifications include correcting typographical errors in the 
application and supplying non-material information that was 
inadvertently omitted or was not available at the time the application 
was submitted.
    (iv) Applications to which major modifications are made after the 
deadline for submitting applications shall be denied. Major 
modifications include, but are not limited to, any changes in the 
ownership of the applicant that constitute an assignment or change of 
control, or the identity of the applicant, or the certifications 
required in the application.
    (v) After receipt and review of the applications, a public notice 
shall identify each long-form applicant that may be authorized to 
receive Rural Digital Opportunity Fund support after the long-form 
applicant submits a letter of credit and an accompanying opinion letter 
as described in paragraph (c) of this section, in a form acceptable to 
the Commission. Each such long-form applicant shall submit a letter of 
credit and accompanying opinion letter as required by paragraph (c) of 
this section, in a form acceptable to the Commission no later than the 
number of business days provided by public notice.
    (vi) After receipt of all necessary information, a public notice 
will identify each long-form applicant that is authorized to receive 
Rural Digital Opportunity Fund support.
    (c) Letter of credit. Before being authorized to receive Rural 
Digital Opportunity Fund support, a winning bidder shall obtain an 
irrevocable standby letter of credit which shall be acceptable in all 
respects to the Commission.
    (1) Value. Each recipient authorized to receive Rural Digital 
Opportunity Fund support shall maintain the standby letter of credit in 
an amount equal to, at a minimum, one year of support, until the 
Universal Service Administrative Company has verified that the 
recipient has served 100 percent of the Connect America Cost Model-
determined location total (or the adjusted Connect America Cost Model 
location count if there are fewer locations) by the end of year six.
    (i) For year one of a recipient's support term, it must obtain a 
letter of credit valued at an amount equal to one year of support.
    (ii) For year two of a recipient's support term, it must obtain a 
letter of credit valued at an amount equal to eighteen months of 
support.
    (iii) For year three of a recipient's support term, it must obtain 
a letter of credit valued at an amount equal to two years of support.
    (iv) For year four of a recipient's support term, it must obtain a 
letter of credit valued at an amount equal to three years of support.
    (v) A recipient may obtain a new letter of credit or renew its 
existing letter of credit so that it is valued at an amount equal to 
one year of support once it meets its optional or required service 
milestones. The recipient may obtain or renew this letter of credit 
upon verification of its buildout by the Universal Service 
Administrative Company. The recipient may maintain its letter of credit 
at this level for the remainder of its deployment term, so long as the 
Universal Service Administrative Company verifies that the recipient 
successfully and timely meets its remaining required service 
milestones.
    (vi) A recipient that fails to meet its required service milestones 
must obtain a new letter of credit or renew its existing letter of 
credit at an amount equal to its existing letter of credit, plus an 
additional year of support, up to a maximum of three years of support.
    (vii) A recipient that fails to meet two or more required service 
milestones must maintain a letter of credit in the amount of three year 
of support and may be subject to additional non-compliance penalties as 
described in Sec.  54.320(d).
    (2) Bank eligibility. The bank issuing the letter of credit shall 
be acceptable to the Commission. A bank that is acceptable to the 
Commission is:
    (i) Any United States bank
    (A) That is insured by the Federal Deposit Insurance Corporation, 
and
    (B) That has a bank safety rating issued by Weiss of B- or better; 
or
    (ii) CoBank, so long as it maintains assets that place it among the 
100 largest United States Banks, determined on basis of total assets as 
of the calendar year immediately preceding the issuance of the letter 
of credit and it has a long-term unsecured credit rating issued by 
Standard & Poor's of BBB- or better (or an equivalent rating from 
another nationally recognized credit rating agency); or
    (iii) The National Rural Utilities Cooperative Finance Corporation, 
so long as it maintains assets that place it among the 100 largest 
United States Banks, determined on basis of total assets as of the 
calendar year immediately preceding the issuance of the letter of 
credit and it has a long-term unsecured credit rating issued by 
Standard & Poor's of BBB- or better (or an equivalent rating from 
another nationally recognized credit rating agency); or
    (iv) Any non-United States bank:
    (A) That is among the 100 largest non-U.S. banks in the world, 
determined on the basis of total assets as of the end of the calendar 
year immediately preceding the issuance of the letter of credit 
(determined on a U.S. dollar equivalent basis as of such date);
    (B) Has a branch office in the District of Columbia or such other 
branch office agreed to by the Commission;
    (C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to

[[Page 13801]]

a BBB- or better rating by Standard & Poor's; and
    (D) Issues the letter of credit payable in United States dollars
    (3) Bankruptcy opinion letter. A long-form applicant for Rural 
Digital Opportunity Fund support shall provide with its letter of 
credit an opinion letter from its legal counsel clearly stating, 
subject only to customary assumptions, limitations, and qualifications, 
that in a proceeding under Title 11 of the United States Code, 11 
U.S.C. 101 et seq. (the ``Bankruptcy Code''), the bankruptcy court 
would not treat the letter of credit or proceeds of the letter of 
credit as property of the winning bidder's bankruptcy estate under 
section 541 of the Bankruptcy Code.
    (4) Non-compliance. .Authorization to receive Rural Digital 
Opportunity Fund support is conditioned upon full and timely 
performance of all of the requirements set forth in this section, and 
any additional terms and conditions upon which the support was granted.
    (i) Failure by a Rural Digital Opportunity Fund support recipient 
to meet its service milestones for the location totals determined by 
the Connect America Cost Model, or the location total that is adjusted 
by the Wireline Competition Bureau for those areas where there are 
fewer locations than the number of locations determined by the Connect 
America Cost Model, as required by Sec.  54.802 will trigger reporting 
obligations and the withholding of support as described in Sec.  
54.320(d). Failure to come into full compliance during the relevant 
cure period as described in Sec. Sec.  54.320(d)(1)(iv)(B) or 
54.320(d)(2) will trigger a recovery action by the Universal Service 
Administrative Company as described in Sec.  54.320(d)(1)(iv)(B) or 
Sec.  54.806(c)(1)(i), as applicable. If the Rural Digital Opportunity 
Fund recipient does not repay the requisite amount of support within 
six months, the Universal Service Administrative Company will be 
entitled to draw the entire amount of the letter of credit and may 
disqualify the Rural Digital Opportunity Fund support recipient from 
the receipt of Rural Digital Opportunity Fund support or additional 
universal service support.
    (ii) The default will be evidenced by a letter issued by the Chief 
of the Wireline Competition Bureau, or its respective designees, which 
letter, attached to a standby letter of credit draw certificate, shall 
be sufficient for a draw on the standby letter of credit for the entire 
amount of the standby letter of credit.


Sec.  54.805   Rural Digital Opportunity Fund public interest 
obligations.

    (a) Recipients of Rural Digital Opportunity Fund support are 
required to offer broadband service with latency suitable for real-time 
applications, including Voice over internet Protocol, and usage 
capacity that is reasonably comparable to comparable offerings in urban 
areas, at rates that are reasonably comparable to rates for comparable 
offerings in urban areas. For purposes of determining reasonable 
comparable usage capacity, recipients are presumed to meet this 
requirement if they meet or exceed the usage level announced by public 
notice issued by the Wireline Competition Bureau. For purposes of 
determining reasonable comparability of rates, recipients are presumed 
to meet this requirement if they offer rates at or below the applicable 
benchmark to be announced annually by public notice issued by the 
Wireline Competition Bureau, or no more than the non-promotional prices 
charged for a comparable fixed wireline service in urban areas in the 
state or U.S. Territory where the eligible telecommunications carrier 
receives support.
    (b) Recipients of Rural Digital Opportunity Fund support are 
required to offer broadband service meeting the performance standards 
for the relevant performance tier.
    (1) Rural Digital Opportunity Fund support recipients meeting the 
minimum performance tier standards are required to offer broadband 
service at actual speeds of at least 25 Mbps downstream and 3 Mbps 
upstream and offer a minimum usage allowance of 250 GB per month, or 
that reflects the average usage of a majority of fixed broadband 
customers as announced annually by the Wireline Competition Bureau over 
the 10-year term.
    (2) Rural Digital Opportunity Fund support recipients meeting the 
baseline performance tier standards are required to offer broadband 
service at actual speeds of at least 50 Mbps downstream and 5 Mbps 
upstream and offer a minimum usage allowance of 250 GB per month, or 
that reflects the average usage of a majority of fixed broadband 
customers as announced annually by the Wireline Competition Bureau over 
the 10-year term.
    (2) Rural Digital Opportunity Fund support recipients meeting the 
above-baseline performance tier standards are required to offer 
broadband service at actual speeds of at least 100 Mbps downstream and 
20 Mbps upstream and offer at least 2 terabytes of monthly usage.
    (3) Rural Digital Opportunity Fund support recipients meeting the 
Gigabit performance tier standards are required to offer broadband 
service at actual speeds of at least 1 Gigabit per second downstream 
and 500 Mbps upstream and offer at least 2 terabytes of monthly usage.
    (4) For each of the tiers in paragraphs (b)(1) through (3) of this 
section, bidders are required to meet one of two latency performance 
levels:
    (i) Low-latency bidders will be required to meet 95 percent or more 
of all peak period measurements of network round trip latency at or 
below 100 milliseconds; and
    (ii) High-latency bidders will be required to meet 95 percent or 
more of all peak period measurements of network round trip latency at 
or below 750 ms and, with respect to voice performance, demonstrate a 
score of four or higher using the Mean Opinion Score (MOS).
    (c) Recipients of Rural Digital Opportunity Fund support are 
required to bid on category one telecommunications and internet access 
services in response to a posted FCC Form 470 seeking broadband service 
that meets the connectivity targets for the schools and libraries 
universal service support program for eligible schools and libraries 
(as described in Sec.  54.501) located within any area in a census 
block where the carrier is receiving Rural Digital Opportunity Fund 
support. Such bids must be at rates reasonably comparable to rates 
charged to eligible schools and libraries in urban areas for comparable 
offerings.


Sec.  54.806   Rural Digital Opportunity Fund reporting obligations, 
compliance, and recordkeeping.

    (a) Recipients of Rural Digital Opportunity Fund support shall be 
subject to the reporting obligations set forth in Sec. Sec.  54.313, 
54.314, and 54.316.
    (b) Recipients of Rural Digital Opportunity Fund support shall be 
subject to the compliance measures, recordkeeping requirements and 
audit requirements set forth in Sec.  54.320(a)-(c).
    (c) Recipients of Rural Digital Opportunity Fund support shall be 
subject to the non-compliance measures set forth in Sec.  54.320(d) 
subject to the following modifications related to the recovery of 
support.
    (1) If the support recipient does not report it has come into full 
compliance after the grace period for its sixth year or eighth year 
service milestone as applicable or if USAC determines in the course of 
a compliance review that the eligible telecommunications carrier does 
not have sufficient evidence to demonstrate that it is offering service 
to all of the locations required by the sixth

[[Page 13802]]

or eighth year service milestone as set forth in Sec.  54.320(d)(3):
    (i) Sixth year service milestone. Support will be recovered as 
follows after the sixth year service milestone grace period or if USAC 
later determines in the course of a compliance review that a support 
recipient does not have sufficient evidence to demonstrate that it was 
offering service to all of the locations required by the sixth year 
service milestone:
    (A) If an ETC has deployed to 95 percent or more of the Connect 
America Cost Model location count or the adjusted Connect America Cost 
Model location count if there are fewer locations, but less than 100 
percent, USAC will recover an amount of support that is equal to 1.25 
times the average amount of support per location received in the state 
for that ETC over the support term for the relevant number of 
locations;
    (B) If an ETC has deployed to 90 percent or more of the Connect 
America Cost Model location count or the adjusted Connect America Cost 
Model location count if there are fewer locations, but less than 95 
percent, USAC will recover an amount of support that is equal to 1.5 
times the average amount of support per location received in the state 
for that ETC over the support term for the relevant number of 
locations, plus 5 percent of the support recipient's total Rural 
Digital Opportunity Fund support authorized over the 10-year support 
term for that state;
    (C) If an ETC has deployed to fewer than 90 percent of the Connect 
America Cost Model location count or the adjusted Connect America Cost 
Model location count if there are fewer locations, USAC will recover an 
amount of support that is equal to 1.75 times the average amount of 
support per location received in the state for that ETC over the 
support term for the relevant number of locations, plus 10 percent of 
the support recipient's total Rural Digital Opportunity Fund support 
authorized over the 10-year support term for that state.
    (ii) Eighth year service milestone. If a Rural Digital Opportunity 
Fund support recipient is required to serve more new locations than 
determined by the Connect America Cost Model, support will be recovered 
as follows after the eighth year service milestone grace period or if 
USAC later determines in the course of a compliance review that a 
support recipient does not have sufficient evidence to demonstrate that 
it was offering service to all of the locations required by the eighth 
year service milestone:
    (A) If an ETC has deployed to 95 percent or more of its new 
location count, but less than 100 percent, USAC will recover an amount 
of support that is equal to the average amount of support per location 
received in the state for that ETC over the support term for the 
relevant number of locations;
    (B) If an ETC has deployed to 90 percent or more of its new 
location count, but less than 95 percent, USAC will recover an amount 
of support that is equal to 1.25 times the average amount of support 
per location received in the state for that ETC over the support term 
for the relevant number of locations;
    (C) If an ETC has deployed to 85 percent or more of its new 
location count, but less than 90 percent, USAC will recover an amount 
of support that is equal to 1.5 times the average amount of support per 
location received in the state for that ETC over the support term for 
the relevant number of locations, plus 5 percent of the support 
recipient's total Rural Digital Opportunity Fund support authorized 
over the 10-year support term for that state;
    (D) If an ETC has deployed to less than 85 percent of its new 
location count, USAC will recover an amount of support that is equal to 
1.75 times the average amount of support per location received in the 
state for that ETC over the support term for the relevant number of 
locations, plus 10 percent of the support recipient's total Rural 
Digital Opportunity Fund support authorized over the 10-year support 
term for that state.
    (2) Any support recipient that believes it cannot meet the third-
year service milestone must notify the Wireline Competition Bureau 
within 10 business days of the third-year service milestone deadline 
and provide information explaining this expected deficiency. If a 
support recipient has not made such a notification by March 1 following 
the third-year service milestone, and has deployed to fewer than 20 
percent of the required number of locations by the end of the third 
year, the recipient will immediately be in default and subject to 
support recovery. The Tier 4 status six-month grace period as set forth 
in Sec.  54.320(d)(iv) will not be applicable.

[FR Doc. 2020-03135 Filed 3-9-20; 8:45 am]
 BILLING CODE 6712-01-P