GeoLinks’ Comments to the FCC on Rural Digital Opportunity Fund

Before the

Federal Communications Commission

Washington, DC  20554

COMMENTS OF CALIFORNIA INTERNET, L.P. DBA GEOLINKS

September 20, 2019

 

SUMMARY

California Internet, L.P. dba GeoLinks (“GeoLinks” or the “Company”) is one of the fastest growing Internet and phone providers in America and the #1 fast growing fixed wireless service provider in California.  While the Company had previously focused on business and enterprise customers, in 2016, GeoLinks turned its focus to expand its customer base to include unserved and underserved areas throughout California and beyond.  GeoLinks was recently named an auction winner in the Connect America Fund Phase II (“CAF”) Auction securing funding to connect more than 11,000 unserved locations making it the largest CAF winner in California and the fifth largest overall.

GeoLinks supports the creation of the Rural Digital Opportunity Fund (“RDOF”) and largely supports all of the Commission’s proposals regarding the RDOF.  In particular, the Company agrees that the Commission should make 25 Mbps/ 3 Mbps the minimum standard for high speed broadband service and should prioritize areas at risk for falling further behind the rest of the country.  GeoLinks also supports the Commission’s efforts to speed up broadband deployment and minimize administrative burdens on RDOF recipients.  

However, there are some proposals that pose serious issues and could result in diminished participation in the RDOF auction, resulting in many areas remaining unserved by high speed broadband services.  In particular, the Commission’s proposed Letter of Credit (“LOC”) requirement and proposed subscribership reporting requirement pose significant threats to the success of the RDOF program and should be rejected.  GeoLinks provides these comments to provide input into the proposed RDOF auction processes and requirements.   

COMMENTS OF CALIFORNIA INTERNET, L.P. DBA GEOLINKS

California Internet, L.P. DBA GeoLinks (“GeoLinks” or the “Company”) submits these Comments in response the Notice of Proposed Rulemaking (“NPRM”) issued August 2, 2019 in the aforementioned proceedings.

INTRODUCTION

GeoLinks commends the Commission on its efforts to deploy high speed broadband to the remaining unserved areas of the country.  As a service provider focused on the unserved market, GeoLinks understands the challenges associated with deployment to these areas.  Moreover, as a CAF award winner, GeoLinks understands the intricacies of the reverse auction process and recognizes what works for small to medium sized service providers and what may not.  While GeoLinks supports the creation of the RDOF and largely supports all of the Commission’s proposals regarding the RDOF, there are some proposals that could result in diminished participation in the RDOF auction.  GeoLinks explains these issues below and provides these comments to provide input into the proposed RDOF auction processes and requirements.  

DISCUSSION

• The Commission Should Make 25/3 Mbps Service the Minimum and Prioritize Areas That Lack Services Above 10/1 Mbps

In the NPRM, the Commission “proposes a 25/3 Mbps service availability threshold as the basis for establishing eligible areas.”  The NPRM also proposes a baseline performance threshold of 25/3 Mbps, eliminating the 10/1 Mbps Minimum performance tier that was in place for the CAF Auction.  GeoLinks supports both of these proposals.  While GeoLinks believes that broadband funding should promote “future proof” network construction, the Company also understands the realities of providing high speed broadband to far reaching areas that require brand new infrastructure in order to serve.  Therefore, it is reasonable that there be an attainable minimum. GeoLinks urges the Commission to make 25/3 Mbps the minimum threshold for broadband speed under the RDOF (for all auction-related purposes).  

While GeoLinks would like to see all areas without at least 25/3 Mbps service available for support immediately, the Company also understands that it may be prudent to prioritize areas with the slowest Internet speeds in order to ensure these areas don’t fall further behind the rest of the country.  In the NPRM, the Commission seeks comment on prioritizing areas that entirely lack 10/1 Mbps or better fixed service and asks how it should do so.  GeoLinks supports the idea of higher reserve prices and/or additional bidding credits for these areas.  In GeoLinks’ experience, sometimes even with a 100% subsidy for the costs of an area, the economics still do not make sense to build infrastructure that the company will incur additional costs to maintain, market, etc.  These areas likely suffer from the same realities. Therefore, higher reserve prices or credits may allow auction participants to craft bids in a way that make economic sense. In addition, GeoLinks would support a separate auction phase as a way to encourage rapid deployment in these areas.

GeoLinks does not believe that the Commission should prioritize areas solely on the basis that they entirely lack 4G LTE mobile wireless broadband service.  As the Commission itself has recognized, mobile and fixed broadband services are not full substitutes for each other in all cases.  For the purposes of RDOF, the Commission should focus on fixed broadband services which can be used to serve consumers, business, and anchor institutions.  While GeoLinks anticipates that there will be significant overlap between areas that lack 10/1 Mbps service and those that lack 4G LTE services, GeoLinks urges the Commission to base any prioritization on where fixed broadband is lacking.  

• The Commission Can Encourage Faster Build Out by Offering Service Providers the Option to Front-Load RDOF Support

The NPRM asks whether the Commission should “require support recipients to build out more quickly earlier in their support terms by offering voice and broadband service to 50% of the requisite number of locations in a state by the end of the third year of funding authorization.”  GeoLinks supports the idea of faster deployment of highspeed broadband to unserved and underserved areas.  In fact, GeoLinks is hopeful to complete 100% of its CAF auction buildout milestones well before the applicable deadlines.  However, if the Commission does decide to ramp up the build out requirements as proposed, GeoLinks would urge the Commission to also offer RDOF recipients the option to ramp up RDOF funding distributions.  Under this scenario, if a service provider were expected to build out 50% within 3 years, then funding could be front-loaded during those three years to cover all construction and deployment costs associated with a 50% network build.  Then, after those three years, if funding was front-loaded and assuming the RDOF awardee meets its milestones, the Commission could ramp down payments over the remainder of the 10-year period.  

GeoLinks suggests that the Commission allow RDOF recipients who chose the front-loaded funding option to select how funding is distributed during the first three years.  The Commission could provide some standard options (e.g. 50% over the first three years and then the remaining 50% distributed over the last seven, etc.) for RDOF recipients to chose from (subject to reporting requirements).  Because offering this option would not change the overall RDOF budget, the Commission should be able to accommodate it without any risk to the USF fund. While the front-loading option may mean more payouts over the first few years of the program, this would be made up for over remaining years of reduced payments leaving the overall program budget the same.  

While GeoLinks believes that several RDOF recipients will take advantage of this front-loading option, GeoLinks notes that it must be an option (not a program rule) due to the current LOC requirement that the Commission proposes to require.  As GeoLinks explains in great detail below, the LOC requirement is very burdensome on service providers – especially small and mid-sized providers. They carry heavy fees, make it difficult for service providers to secure additional funding, if needed, and often require high collateral amounts.  If the Commission insists on requiring LOCs for RDOF, front-loading of funds will result in larger LOC amounts for the first years of the program. This structure may not work for some providers as they may be unable to obtain larger LOCs for the first few years of funding or the fees/ restrictions/ collateral requirements may outweigh the benefit of front-loading funding.  GeoLinks is hopeful that the Commission will adopt the option for RDOF recipients to obtain a performance bond for RDOF funding instead of an LOC. Regardless, a front-loading payment option should be at the RDOF recipient’s discretion.  

• The Commission Should Harmonize RDOF Reporting Requirements with Those Required for CAF Auction Recipients

In the NPRM the Commission seeks comment on how it can align service milestones to minimize administrative burden.  GeoLinks asserts that all RDOF reporting deadlines should align with the applicable reporting deadlines imposed on CAF auction awardees.  This includes for service milestone reporting, location reporting deadlines, etc. GeoLinks believe that this will be the most administratively simple process.  Regarding deadlines for service providers that may be authorized to receive support on different dates, GeoLinks urges the Commission to still use the same reporting deadlines applicable to CAF for all awardees.  

• The Commission Should Not Implement Subscribership Milestones as a Basis for RDOF Funding

GeoLinks generally supports the service milestones that the Commission proposes in the NPRM as they very closely track the requirements set forth for the CAF auction.  These service milestones have been thoroughly vetted via the comment process and the success of the CAF Auction and are good measures of awardee progress. However, the Commission proposes one new milestone, in particular, that will not serve to track a service provider’s progress in reaching its RDOF buildout requirements and, instead, may discourage providers from bidding on areas at all.  Specifically, the Commission’s proposed subscription requirement.  

In the NPRM, the Commission proposes “to also adopt subscribership milestones for Rural Digital Opportunity Fund support recipients” and suggests that the “proposal could set milestones at 70% (the subscribership level assumed by the CAM) of the yearly deployment benchmarks.”  The NPRM goes on the explain that “under this proposal, we would condition a portion of the recipient’s support on meeting the subscribership milestones.”  While GeoLinks is certainly not opposed to the requirement that an RDOF-funded project be designed to support a high level of subscribership, requiring service providers to ensure a high level of subscribership or risk losing funds for network that has already been built will only serve to discourage participation in the RDOF auction.  

From a statutory perspective, Universal Service Fund (“USF”) funds are only to be used for broadband deployment, not adoption.  Section 254 of the Communications Act of 1934 specifies that high-cost support can only be used “for the provision, maintenance, and upgrading of facilities and services for which the support is intended.”  This language only contemplates deployment of facilities, not adoption efforts.  Therefore, adoption requirements for RDOF would fall outside the scope of the FCC’s statutory authority with respect to Section 254.  

From a policy perspective, broadband “subscription” and “availability” should not be conflated.  While an RDOF-funded network should be able to support robust subscribership in eligible areas, there are more factors than just “where infrastructure is” that dictate whether a consumer chooses to subscribe to the services offered.  In many of the areas that RDOF will cover, consumers have lived with slow or no Internet connections for a long time. Consumers in these areas may not understand the benefits of highspeed broadband connections based on a lack of firsthand knowledge.  In these cases, many of these customers may opt to remain on their slower connections (if available) or may not see the benefit of connecting at all. This is a reality that the State of California has recognized in its ongoing implementation of the California Advanced Services Fund (“CASF”).  In 2017, the California Legislature made changes to the CASF program including the creation of the Broadband Adoption Grant Program to fund digital inclusion projects and broadband access projects that focus on broadband education, digital literacy, providing public broadband access, and community outreach.  The state legislature realized that availability alone is not enough to spur adoption and created additional grant funds to increase subscribership.  

Moreover, in addition to the possibility of a low consumer take rate, it is possible that RDOF recipients will face competition (including existing providers offering slow speeds or satellite providers that may not qualify for RDOF based on latency factors).  This can also affect subscriber numbers. If community members split subscriptions between the RDOF-funded provider and a competitive provider (or among more than one competitive provider), under the proposed subscribership requirement the RDOF-funded provider might be at risk for losing support for the area despite meeting all other requirements.  

GeoLinks believes that other aspects of the RDOF framework address the Commission’s concerns regarding subscribership.  First, networks must be robust enough to support a 70% subscription rate. Second, recipients, as ETCs, will be required to market services throughout their RDOF service territory.  Lastly, because there is a requirement to install within 10 days in order to claim an area as “served” there is certainty that a customer could subscribe if desired. For these reasons, GeoLinks strongly encourages the Commission to focus the efforts of RDOF to increasing and expanding broadband availability and not impose potentially impossible subscribership requirements.  

• The Commission Should Eliminate the Standalone Voice Service Requirement

In the NPRM, the Commission proposes to require RDOF recipients to offer standalone voice service, as it did under CAF, and seeks comment on this proposal.  While GeoLinks is prepared to offer standalone voice service throughout its CAF award areas, the Company does not believe that this should be a requirement for RDOF funding.  Instead, GeoLinks urges the Commission to simply require that RDOF winners offer a voice service option, which can be available via a service bundle. If there is demand for a standalone voice option, RDOF winners will offer it.  However, if there is not, the Commission should not require an RDOF winner to incur the costs associated with ensuring a standalone voice service is available to all eligible locations within its RDOF service area.    

• The Commission Should Adopt a Larger Minimum Geographic Area for the RDOF Auction

The NPRM seeks comment on “whether census block groups containing one or more eligible census blocks is an appropriate minimum geographic unit for bidding for the [RDOF]” or whether “a larger minimum geographic unit, like census tracts or counties” would be more manageable.  GeoLinks supports the idea of larger minimum geographic units, specifically census tracts.  GeoLinks believes that larger minimum geographic areas will promote RDOF bids that take into account more network synergies, which may result in lower bids and less draw from the USF.  Bidding by census block group, while successful under CAF, was more complex and made it more difficult for service providers to gauge costs over larger areas. For these reasons, GeoLinks supports a larger minimum geographic area for the RDOF auction.  

• The Commission Should Not Impose a Letter of Credit Requirement Under RDOF

In the NPRM, the Commission proposes to require a letter of credit (“LOC”) from RDOF long-form applicants as it did in the CAF Auction and seeks comment on “whether the Commission should use alternative measures to protect disbursed funds.”  As a CAF award recipient, GeoLinks has firsthand knowledge of the LOC process, what banks require to obtain one, and the burden that LOCs carry for small to mid-sized service providers.  GeoLinks strongly opposes implementing an LOC process for RDOF and commends the Commission for being willing to consider alternatives.  

As an initial matter, LOCs are very expensive to obtain.  Even at a 3% fee (which GeoLinks believes is on the low end of what service providers are receiving), under CAF, because of the requirement that LOC amounts increase exponentially each year to align with fund disbursements, LOC fees paid to banks account for a sizeable chunk of total CAF funds; funds which could be used for additional broadband deployment.  While the Commission did address its understanding that LOC’s carry costs in the Phase II Auction Order, the assumption that service providers would simply bake those costs into their bids also assumes that USF funds should be used for those costs.  GeoLinks urges the Commission to consider alternative options that carry fewer costs to ensure that more USF funds, in this case RDOF funds, are used for broadband deployment rather than to pay bank fees.

Second, obtaining an LOC may hinder a provider from securing additional types of funding to procure equipment and other network essentials early in the buildout process.  In order to secure a large LOC, a provider may either be required to use a large percentage of their initial CAF funds as collateral against the LOC or may be required to agree to far reaching UCC liens that affect the provider’s ability to borrow additional funds.  In either event, such requirements make it difficult for service providers to engage in rapid deployment of new network infrastructure, even if the costs of an LOC are built into the CAF bid. The result is slower deployment as providers are forced to prioritize bank costs over buildout costs.

   Third, because of the way LOC requirements are currently written, LOC holders under CAF are being charged like a drawn line of credit, subject to EBITDA-to-debt ratios.  This means that as the LOC requirement grows, there is a risk that the LOC amount will outgrow a service provider’s lending ability with the financial institution issuing the LOC.  Under this scenario, even if a service provider is on track to complete its buildout requirements, it could find itself unable to maintain the line of credit needed for the LOC resulting in default.  This is especially true for small and mid-sized service providers.  

Fourth, as the LOC amount grows year over year, even if the service provider is able to secure the necessary LOC, some banks may not be able to take on the risk associated with funding the LOC.  For example, by years 3 and 4 an LOC requirement could reach tens of millions of dollars for some recipients. Under these circumstances, a service provider may need to secure multiple LOCs in order to cover the entire amount required by the Commission.  However, as mentioned above, if the provider does not have the requisite cash reserves, each bank may require a first position UCC lien. This may make it impossible for the carrier to secure more than one LOC. While discounts on the LOC amount are possible depending on buildout rate, as noted above, if initial CAF funds are being diverted to banks for LOC security and UCC liens are being imposed, obtaining additional funding in order to build network may not be possible.

Lastly, and perhaps most importantly, the LOC requirement disproportionately affects small and mid-sized service providers.  While one of the Commission’s stated goals for creating the RDOF reverse auction process is to encourage “intermodal competition,” the LOC process does not put providers on equal footing.  For example, a small, regional provider that has been offering service to a rural community may be the best solution to get high-speed service, tailored to the unique needs of those consumers, to any adjacent RDOF areas.  However, because this small provider may have fewer cash reserves than larger carriers or have a shorter history of creditworthiness, it will face an additional level of scrutiny in obtaining an LOC. This will inevitably makes securing an LOC very difficult, expensive and time consuming for the provider, which the provider must weigh against its interest in participating in the RDOF auction.  The unfortunate result may be that this provider opts not to participate in RDOF and that the adjacent unserved areas remain unserved.  

GeoLinks implores the Commission not to create policies that will divert USF funds away from their intended purpose, cause service providers to stall deployment, or preclude small and mid-sized providers from participating in the RDOF.  Instead, because the Company does realize the need for the Commission to protect itself, GeoLinks proposes the following alternatives to the LOC process. The Company believes these options strike the right balance between protecting the Commission’s interests and ensuring participation in the RDOF by small and mid-sized service providers. 

• The Commission Should Implement a Performance Bond Option for RDOF Long-Form Applicants

In the NPRM, the Commission asks if there are viable, less costly alternatives to LOCs that still minimize risk to public.  One such alternative is a performance bond.  A performance bond requirement would provide the same protections for the Commission that an LOC would with far less cost to the USF fund and far less burden on RDOF recipients.  For example, like an LOC, performance bonds can carry stipulations on how the Commission would be able to receive compensation/ draw from the bond and would clearly define what a default would consist of.  However, unlike an LOC, there is less risk to the Commission of a service provider defaulting because it couldn’t obtain an LOC in later years of the program.  

As discussed above, the LOC requirement, as proposed and as required under CAF, is written to cover funding to be received in a coverage year AND funding that has been received to date.  While these amounts may start small, by year 3 or 4, these numbers can be astronomical and carry both heavy fees and heavy collateral or credit requirements. If a small or mid-sized service provider is unable to secure the collateral required to obtain an LOC or cannot overcome the other hurdles, a bank will refuse to renew the LOC and, under the Commission’s rules, will leave the RDOF recipient in default.  Meanwhile a performance bond carries far fewer collateral/ credit requirements while still offering the Commission the same amount of coverage. The reduction in risk of default alone should be enough to convince the Commission that a performance bond is the superior option, let alone the reduction in burden to RDOF recipients and to the USF.   

 By way of example, the California Public Utilities Commission has used performance bonds for its California Advanced Services Fund (“CASF”) broadband infrastructure grants since 2007 “to provide requisite assurance that [an] applicant has the financial resources to complete the broadband project.”  Specifically, the CPUC explained that the purpose of requiring a performance bond would be to “provide adequate financial safeguards, and reasonable certainty that the broadband project can be completed, or that funds can be retrieved from the applicant in event of nonperformance.”  As of April 2019, the CPUC has awarded more than $236 Million in grant funding for infrastructure builds, line-extensions, and in revolving loans.  To the best of GeoLinks’ knowledge, the CPUC has never acted to collect on any performance bond.  GeoLinks believes that the CASF fund can serve as a guide for the RDOF program and that a performance bond requirement will serve to adequately protect the Commission while reducing burden on service providers and on the RDOF fund.  

• In the Alternative, the Commission Should Implement an Option for a Reduced Letter of Credit 

While GeoLinks has a strong preference for a performance bond option over an LOC requirement, the Company recognizes that there may be some providers that prefer the LOC process or need to obtain such an instrument due to some financial-related reason.  In this case, GeoLinks is not opposed to allowing service providers to obtain LOCs.   However, GeoLinks urges the Commission to reduce the LOC amount required from year to year.  Specifically, GeoLinks suggests that the Commission reduce the LOC amount required for each year based on whether certain performance metrics are met.  For example, if by the end of year 1 an RDOF recipient has reported building out to a certain percentage of eligible locations within its awarded area (perhaps 17%, which equates to approx. 1/6 of the buildout requirement to be reached within 6 years), the LOC amount would remain at a level equal to the funding to be disbursed in the applicable year (vs. that year plus the funding awarded in any previous years).  This would help keep the LOC cost reasonable and predictable.  Then the Commission could ramp down the requirement more each year as RDOF recipients reach higher completion percentages.  

To accomplish this reduced LOC option, the Commission must publish measurement criteria that can be monitored and measured by lending institutions that underwrite LOCs.  This will allow these institutions to track performance to more accurately assess risk. Even without additional reporting obligations to the Commission, these measurement criteria could be used for lending institutions’ internal reports required under an LOC arrangement to provide assurance that construction was being completed as mandated under RDOF.  

• The Commission Should Require Less Technical Information from CAF Auction Winners in the RDOF Short Form Application Process

In the NPRM, the Commission asks if it should adopt the same two-step application process that the Commission adopted for the CAF Auction.  As a general matter, GeoLinks supports the current two-step process and believes it strikes the right balance to ensure the Commission can properly vet would-be auction participants prior to the auction and obtain all the needed information from auction winners before distributing funds without discouraging service providers from participating due to too much up-front work.  Therefore, GeoLinks urges the Commission to keep the two-step process.  

That said, the NPRM further asks whether the Commission should require “less information at the short-form stage from applicants that qualified to participate in the CAF Phase II auction.”  GeoLinks believes that applicants that the Commission deemed qualified to bid in the CAF auction have already made a strong showing of their technical and financial capabilities.  Therefore, unless there is a serious reason to re-vet these companies, it is reasonable to refrain from requiring them to submit brand new or repetitive info to prove their auction-worthiness.  However, GeoLinks would support a requirement that the pre-vetted applicant attest that nothing material has changed that would render previously submitted financial or technical information void.  Along this vein, GeoLinks believes that any CAF auction winner that defaulted on their winning bids should be subject to additional scrutiny under the RDOF short-form application phase to ensure that additional defaults do not occur.  But they should not be precluded from bidding.

CONCLUSION

GeoLinks commends the Commission on its efforts to deploy high speed broadband to the remaining unserved areas of the country.  While GeoLinks largely supports all of the Commission’s proposals regarding the RDOF, the Company urges the Commission to create policies that will prioritize deployment to areas that currently do not have service over 10/1 Mbps, encourage faster buildout, and avoid discouraging participation in the RDOF auction.  In particular, GeoLinks urges the Commission to reject its proposed LOC and subscribership reporting requirements.     

 

Respectfully submitted,

California Internet, L.P. DBA GeoLinks

/s/ Skyler Ditchfield, Chief Executive Officer

/s/ Melissa Slawson, General Counsel/ V.P of Government Affairs and Education

 

September 20, 2019