California broadband subsidy proposals go into extra innings, with new rules and more competition

by Steve Blum • , , , ,

Extra innings

The fate of the 54 pending proposals for broadband infrastructure grants from the California Advanced Services Fund (CASF) won’t be fully known until early next year, assuming the California Public Utilities Commission approves a draft rewrite of the program’s rules. The goal is to use CASF money to make Californian bids more competitive in the reverse auction for Rural Digital Opportunity Fund (RDOF) subsidies that’ll be run by the Federal Communications Commission later this month. That auction will also, in effect, determine whether some of those CASF project proposals are approved by the CPUC.

As drafted, the new CASF rules create four categories of projects, in a rough order of priority:

  • Projects among the 54 already proposed for CASF grants that win RDOF subsidies. These will have to meet several new eligibility requirements, including gigabit-level service and open access obligations, which qualify for, maybe, a 10% “kicker” to the overall project budget, and dark fiber for tribes and/or basic “carrier of last resort” phone service, which gets an additional 10% for a total spiff of 20%. These auction winners could also ask to expand their CASF grant requests to adjacent areas.
  • Other winners of RDOF subsidies, subject to the same requirements and funding scheme above.
  • Pending CASF projects on the list of 54 that are in areas which are not eligible for RDOF funding. If simple enough, some of these could be approved (or denied) under existing rules in the next couple of months. Decisions on others would wait until the dust clears on the RDOF auction, likely in the first quarter of 2021.
  • Projects on the list of 54 that are in RDOF-subsidised areas, but don’t win RDOF money. Those will be handled on a case by case basis, taking into account the service proposed, versus that planned by the RDOF winner.

It’s too soon to tell how much money will go to each of those three categories. As it stands now, the 54 pending projects are asking for $533 million in grants, versus only about $216 million available – assuming the CPUC approves doubling the CASF tax rate for the next two years. But that total assumes anywhere from 60% to 100% of the construction budget would come from CASF. If a significant number win RDOF subsidies and only need 10% to 20% funding from CASF, more projects, including ones not currently on the list, could get built.

There are a couple of problems with the draft revisions to the CASF program. First, introducing new rules in the middle of the game is unfair to the Internet service providers that filed their grant applications on time and according to the published specifications last May. It may be done with the greater good of all Californians in mind, but it still rankles. The FCC’s RDOF plan and timetable was approved in January.

The second problem is more serious – the CPUC intends to retroactively apply new rules after the game is over. The draft revisions come too late. The CPUC is inviting a wide open debate on the new rules, and the final version won’t be approved until December, at the earliest. That’s a month after the RDOF auction concludes. With millions of dollars in capital spending and equally severe FCC penalties for defaulting on bids at stake, companies need to know, with a prudent degree of certainty, how much money they can expect and what the requirements are for getting it. Vociferous objections from monopoly model incumbents are likely, and there’s no guarantee that the CPUC will either approve the final plan –whatever it turns out to be – or have enough money to go around. The result is diminishing incentive value of CASF backfill money.

To get the most bang for Californian taxpayers’ bucks, the CPUC needs to pull the trigger before the 29 October 2020 RDOF auction.