rural broadbandAlthough Verizon to date has declined to accept funding through the Connect America Fund (CAF) program to bring broadband to unserved parts of its local service territory, the company may be having a change of heart. Comments filed by Verizon with the FCC suggest the carrier may be interested in bidding in the CAF reverse auction, which will award funding for areas where an incumbent price cap carrier declined funding. The FCC has not yet determined exactly how the reverse auction will work, but Verizon CAF auction ideas discussed in the company’s filing include several measures aimed at maximizing the total number of unserved locations that would get service.

Funding available for the CAF reverse auction is “well below the broadband cost model’s estimate of the subsidy required for the eligible locations,” Verizon states in its filing. And with that in mind, Verizon takes aim at the FCC’s goal of funding some higher-speed, but therefore also higher-cost locations. The Commission, Verizon says, should “establish bidding weights to maximize the number of locations that obtain broadband service at the baseline or above-baseline performance tiers, rather than deplete the limited funds with large subsidies for the costliest performance tier.”

When the FCC offered CAF funding to the price cap carriers last year, the carriers had to accept or decline funding on a statewide basis. Verizon was the only major carrier to decline CAF funding for all of the states in which it operates. But the carrier now has the opportunity to bid on those – or potentially even some other – states in the reverse auction, where the company likely will be bidding against competitive carriers, small neighboring rural ILECS, and others.

Verizon CAF Auction Ideas
Although the FCC is hoping to fund some CAF deployments at gigabit speeds, Verizon cites some sobering data suggesting that should be a relatively limited option.

Verizon notes that as many as 750,000 locations could be eligible for the CAF reverse auction. Of those, about 450,000 are in high-cost areas of price cap territories where the incumbent declined funding. The other 300,000 are “extremely high cost” locations scattered across all price cap territories.
According to Verizon, the FCC cost model shows that subsidies of well over $600 million per year would be required to bring broadband to all 750,000 locations, but the budget for the CAF reverse auction is only $215 million annually.

With this in mind, Verizon CAF auction ideas include prioritizing bids for baseline service above those for above-baseline and gigabit service in order to “maximize the number of homes and businesses that obtain at least the baseline level of broadband from the auction.”

In some cases, high-latency options such as satellite broadband may be less costly to deliver than lower-latency terrestrial wired or wireless options. But Verizon stops short of asking the FCC to stretch funding by prioritizing high-latency services. Instead, the carrier argues that all terrestrial options should be prioritized over high-latency options.

“End users in competitive bidding-supported areas should not be relegated to lesser services,” Verizon argues.

Priority for Declined States
Back in 2014, the FCC used a trial reverse auction to award $100 million in Rural Broadband Experiment funding on a one-time basis to competitive carriers to help cover the costs of bringing service to unserved portions of price cap territories. In that program funding was awarded to carriers that offered to deploy service based on the ratio of the bid to the cost model-based support level. Some winners bid to deploy service for half of the model-based support level or less.

The Verizon CAF auction filing argues against using that approach in the next auction, arguing instead that the lowest dollar-value bids should be given preference over higher-dollar bids, even if the higher-dollar bid is more heavily discounted in relation to the model-based support level.

Verizon’s rationale? “Each time a higher per-location bid is selected over a lower per-location bid, fewer locations will be served with the auction budget.”

The Verizon CAF auction proposal also calls for a mechanism to prioritize funding for states where the incumbent carrier initially declined funding.

“The most straightforward approach would be to rank bids for the declined territories ahead of other bids until the Commission has awarded support to a threshold percentage of bidding-eligible locations in the declined territory or has awarded support in the amount of the CAF II offer to the declined territory,” Verizon argues.

5G for CAF Areas?
The challenges Verizon now faces in potentially bidding in the CAF reverse auction raise the question of why the carrier simply didn’t accept funding to begin with.

The answer may lie in how Verizon would bring broadband to the unserved areas. In the first paragraph of its filing, the carrier praises the commission’s “technology-neutral framework that allows bidders to use any wired or wireless broadband technology that meets the specified performance standards.”

That suggests Verizon is considering a wireless option – and considering the company’s aggressiveness in pursuing 5G fixed wireless, the company may be exploring using that option to bring broadband to areas that lack broadband today. But at the time carriers had to make their initial decisions about accepting CAF, Verizon had not yet done sufficient testing on 5G to understand its full potential.

It’s also important to recognize that carriers won’t have to bid on an entire state in the reverse auction – and that may have been a factor in Verizon’s decision as well. Until now Verizon has referred to 5G fixed wireless as a potential solution for suburban areas. Adding CAF funding to the mix should expand 5G’s viability, but the technology still might not be appropriate for all of Verizon’s unserved areas.