FCC officials today conducted a webinar explaining how proposed CAF II auction rules would work. The auction will award funding to help cover the cost of deploying broadband in unserved rural areas. It is expected to take place in 2018, officials said.

The rules discussed were proposed in a public notice adopted last month. Interested parties have until September 17 to comment on the public notice, with reply comments due October 17.

Proposed CAF II Auction Rules
The CAF II auction is a reverse auction, meaning that funding, in general, is designed to go to the service provider that offers to provide service at the lowest level of support (with some caveats).

The maximum amount of support that any service provider will receive in the CAF II auction, also known as the “reserve price,” is the amount of support that was previously rejected by the incumbent price cap carrier. Collectively, the price cap carriers accepted the majority of funding offered, but up to nearly \$2 billion (up to \$200 million annually for 10 years) remains to be awarded for parts of 20 states.

The FCC previously established weighting factors for the auction, designed to incentivize service providers to deliver higher-speed service with low latency.

Those factors complicate any description of how the auction will work, but Telecompetitor has done its best to offer the simplest possible explanation, as follows:

The auction will be conducted in multiple rounds, and for each round there will be a maximum allowable bid based on a “base clock percentage” that will decrease by 10 for each round.

The amount of support the bidder would get if its bid wins is known as “implied support.” Implied support is equal to the reserve amount or the amount calculated using the following formula, whichever is lower

PP – (T+L)    x R
100

Where:

• PP (price point) = the amount bid, which will be a number within a 10-number range, with the maximum allowable number decreasing by 10 for each auction round (and likely starting at around 140)
• R = reserve price
• T = the weight associated with the service tier (from table above)
• L = the weight associated with service latency (from table above)

The upshot is that a service provider offering higher speeds and lower latency would have a stronger bid than a service provider offering lower speeds and higher latency, even if they were seeking the same level of support measured in dollars.

As FCC officials explained, the reverse auction will create competition for the overall budget and for specific geographic areas. After each round, the commission will determine if there is still competition for the budget and for an area. In general, the winner for an area will be identified when there is only one bidder remaining. (Generally, bidding is by census block, although there is an option for “packaged bids” that include multiple census blocks.)

A “clearing round” occurs when the total amount of implied support for all winners falls within the budget set. If multiple bids remain for an area, additional rounds will continue until someone drops out.

Readers seeking information about packaged bids or other details are advised to consult a technical guide about the CAF II auction that the FCC has prepared.

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