Rural Broadband Experiment Waiver Requests Pose Dilemma for FCC

That has led to a dilemma for the agency, causing some like the American Cable Association, in comments posted Tuesday and Wednesday, to suggest the FCC relax its requirements. But that, USTelecom said in its comments, would loosen a Wireline Bureau requirement that was intended to allow the bureau to “determine the ability of the provisionally selected bidders to satisfy the service obligations for their selected projects.” NTCA is urging the commission not to outright reject the bidders, but to tread carefully.

At issue, according to the notice, are waivers sought from 15 entities provisionally selected for rural broadband experiment support to be excused from a requirement to provide the most recent three consecutive years of audited financial statements. Our tally of figures included in an FCC notice seeking comment found the bidders seeking waivers were provisionally awarded about $50 million in funding. The provisional awards were subject to the bureau’s review of their qualifications. A 16th entity, Computer 5, also sought a waiver Tuesday.

The experiment, authorized by the commission in July (see 1407140040), would provide $75 million to test construction of networks offering speeds of 25 Mbps for downloads and 5 Mbps for uploads. The FCC also set aside $15 million to test interest in delivering service at 10 Mbps upstream/1 Mbps downstream in high-cost areas and another $10 million to test that service level in extremely high-cost areas

That entities representing half the money provisionally granted can't meet the requirement is not an indictment of the program, said ACA Senior Vice President–Governmental Affairs Ross Lieberman in an interview. “I don’t think any of this is unexpected,” Lieberman said, noting the program is intended to be an experiment. “It was intended to highlight issues that may arise. In that regard, it’s successful.” Davis Wright Tremaine’s K.C. Halm agreed, pointing to Strategic Planning and Policy Analysis Chief Jonathan Chambers’ Dec. 24 blog post saying that the experiment was designed to answer questions and that diverse entities had submitted bids.

An FCC spokesman emphasized those provisionally selected ”are far from having a bid awarded” but will move on to further examination. The program is intended to be an “experiment … to provide experience with using auctions to award CAF subsidies, in preparation for auctions that could potentially allocate billions,” the spokesman said. If waivers aren't granted, the agency will move on to provisionally approve other bidders, he said.

Those seeking waivers offered several reasons for not being able to provide the financial statements, saying they haven't been in business for three years, that they hadn't done an independent audit of their finances, or didn't have time to prepare the audited financial statements within 10 days of their selection. The Wireline Bureau said in the public notice the petitioners “have attempted to demonstrate their financial capability to undertake these projects with alternative financial information.” The Rural Broadband Services Corp., according to its waiver petition, began providing broadband services in Oklahoma in 2014 and couldn't provide three years of financial statements. The company, which provisionally received the largest amount among those seeking waivers -- $17.5 million to expand service, including to the Cherokee Nation -- offered instead to provide financial projections and audited annual statements over the 10-year funding period, according to its waiver petition. The company’s attorney, David Cosson, didn't comment Wednesday.

“None of these excuses is adequate to justify a complete waiver of the requirement,” USTelecom said in its comments. “The Commission is acting as a steward of $100 million in funding provided by ratepayers, and thus correctly recognizes that it must not distribute funding until it determines whether the selected applicants” are qualified, USTelecom said. “Audited financial records are an essential showing for the Commission to make this determination.” The bidders knew of the requirements when they applied, USTelecom said, arguing “it cannot be in the public interest for the Commission to waive this rule -- and thus forfeit its ability to do a thorough financial review -- for companies merely based upon their unwillingness to be prepared when they were given fair notice.” The bidding process is also intended to be a test for structuring the Connect America Fund, Phase II bidding process. Granting the waivers “sets a precedent for leniency with respect to the upcoming CAF Phase II auction, in which the stakes are much higher for customers in rural and high-cost areas.” USTelecom didn't comment Wednesday about the program's overall success.

But the need to determine the qualifications of the bidders should be balanced “with the value derived from having smaller providers participate in the program,” ACA said in its comments. The commission should allow bidders to demonstrate within 10 business days they've been operating for three years, and to give them 90 to 120 days after that to submit audited financial statements, ACA said. Unless an entity had sought loans from a bank or public sources, it may not have needed to have expensive audited statements prepared, ACA said.

“If the FCC rejects requests for more time to produce audited financial statements from entities that never had to produce them, they would be sending a discouraging message to small providers, telling them in effect that they shouldn’t participate in the CAF Phase II competitive bidding process,” Lieberman said.

“The Commission is clearly looking for answers beyond traditional incumbent telephone companies, and this proceeding presents an opportunity to identify these new entities and technology that can deploy broadband in unserved areas," Halm said. “An inflexible application of the rules to entities that otherwise meet the program requirements would be shortsighted.”

San Joaquin Broadband, which was tentatively awarded $14.8 million to provide fixed broadband services to 2,585 census blocks in California, argued that not granting its waiver petition would contravene the public interest by denying “voice and broadband to unserved locations” the company is seeking to serve. As an individual, founder, Michael Donnell can't provide three years of company financial statements, the petition said. The waiver should be granted, the petition said, because Donnell is a “seasoned and experienced wireless industry executive,” who was Western Region president of PageNet and CEO of Cellular One. “He is actively recruiting from his network of wireless industry veterans to staff San Joaquin Broadband” and has secured a letter of intent from a bank to provide a letter of credit, the petition said. Donnell has created a business plan and financial projection, the petition said. Not granting the waiver would contravene the public interest, the petition argued, by denying “voice and broadband to unserved locations in 2,585 census blocks.”

In weighing the issue, the commission should conduct “a greater level of in-depth consideration” of the waiver petitions, NTCA said. The commission may not want to grant some flexibility, but rather than providing other forms of documentation, “one of the things we’ve harped on is the need to look at the track record,” said Michael Romano, NTCA senior vice president–policy, in an interview. “Does a company have experience serving rural areas or similar areas? Does it really know how to operate rural broadband networks? … Not that it built a network in downtown Omaha or downtown Chicago, but has the company built and delivered service in an area with one resident in a square mile, and done it for several years?”