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The Most Important Thing You Know Little About – The CAF II Auction and the Future of Broadband Subsidy
Joe Gillan
National Conference of Regulatory Attorneys
May 6, 2019
2
CAF II Auction in Context
$1.7 $1.7
$2.2
$2.6
$3.0
$3.5 $3.5
$3.8
$4.1 $4.3
$4.5 $4.3 $4.3
$4.0 $4.1
$4.2
$3.8
$4.5 $4.5 $4.7
$4.5
$0.2
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Fed
eral
Hig
h C
ost
Su
pp
ort
($
bil
lio
ns)
CAF II
3
Performance Tier Speed Usage Allowance Weight
Minimum ≥ 10/1 Mbps ≥ 150 GB 65
Baseline ≥ 25/3 Mbps ≥ 150 GB or U.S. median,
whichever is higher 45
Above Baseline ≥ 100/20 Mbps 2 TB 15
Gigabit ≥ 1 Gbps/500 Mbps 2 TB 0
Bid Components for CAF II
Latency Requirement Weight
Low Latency ≤ 100 ms 0
High Latency ≤ 750 ms & MOS of ≥4 25
Score = Bid
x 100 + Tier + Latency Reserve Price
4
Bid Annual Support by Round ($ millions)
$598.3 $607.4 $593.6
$578.5 $559.8
$537.7 $514.5
$474.7
$426.3
$364.2
$305.9
$198.0 $176.3
$161.1 $153.5 $150.9 $149.1 $148.8
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Bid Competition Between Areas
(Competition Phase)
Bid Competition Within Areas
(Contestation Phase)
Budget
CAF II Auction Winners by Provider Type
Provider Type Annual Support
($ Millions)
Locations
Satellite $12.2 8% 190,595 27%
Cable $4.1 3% 10,165 1%
Electric utility/affiliates $26.5 18% 91,852 13%
Fixed Wireless $71.8 48% 263,752 37%
Other Wireless $9.8 7% 47,870 7%
Rural LECs/Affiliates $15.2 10% 59,910 8%
Price Cap ILEC $1.1 1% 3,726 1%
Other $8.2 5% 45,306 6%
$148.8 713,176
The Auction Produced Faster Speeds than CAF II ROFR Obligation (10/1)
Minimum 10/1, 0.3%
Baseline 25/3, 46.8%
Above Baseline
100/20, 19.0%
Gigabit, 34.0%
CAF Program in Price Cap Areas
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
The Right-of-First-Refusal (RoFR) Offer
to Price Cap Carriers reduced the
estimated number of unserved locations
by approximately 74%
Before CAF After RoFR
Un
serv
ed L
oca
tio
ns
(mil
lion
s)
Two Key Metrics of CAF II – Coverage and Cost
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Auction is 70% less than Cost Model
CAF II 10 yr. Support: $1.48 billion
CAM Estimate: $ 5.0 billion
The CAF II Auction will further
reduced the estimated number of
unserved locations by
approximately 75%
Before CAF After RoFR After Auction
Un
serv
ed L
oca
tio
ns
(mil
lion
s)
Effect of Losing ViaSat on Coverage
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
The CAF II Auction would reduced
the estimated number of unserved
locations by approximately 50%
without ViaSat.
Before CAF After RoFR After Auction
Un
serv
ed L
oca
tio
ns
(mil
lion
s)
Monthly Subsidy Per Location
$53.08 $52.36
$17.39
$21.78
$0
$10
$20
$30
$40
$50
$60
Price Cap
Offered
Price Cap
Accepted
Auction
(with Viasat)
Auction
(no Viasat)
The States with the Largest Benefit (Unserved Locations in Price Cap territory)
Locations in Auction
Locations Awarded
Without
Viasat
Utah 3,820 3,817 100% 22%
Montana 6,621 6,598 100% 19%
Iowa 16,985 16,759 99%
Nebraska 9,053 8,900 98%
Idaho 11,192 10,921 98% 65%
Kansas 14,424 13,817 96%
Hawaii 4,115 3,936 96%
New Mexico 13,171 12,452 95% 70%
Oklahoma 74,980 70,727 94%
Missouri 104,865 95,130 91%
Illinois 35,582 32,124 90%
Washington 18,475 16,644 90% 31%
$ 50 million CAF II Left Over
Rural Digital Opportunity Fund
$2.04 Billion/Yr for 10 Years
CAF II Conclusions
Auction produced faster broadband at far less cost than the CAF II Cost Model claimed was necessary.
Caveat: The best-laid plans of mice and men (and CAF II Awardees) often go awry.
There are questions as to whether satellite can meet the FCC Performance Order requirements as to MOSC.
Next round will test OpEx (broadband retention) vs CapEx (broadband expansion).