California needs aggressive bids to win federal broadband subsidies

by Steve Blum • , ,

California has 88,000 eligible homes and businessesin the next round of federal Connect America Fund broadband subsidies. That round will be a reverse auction, where Internet service providers – including incumbent telcos – will compete for $1.3 billion that’s been earmarked for broadband upgrades in, mostly, rural areas.

Nationwide, the Federal Communications Commission has a total of 1.5 million homes and businesses on its preliminary eligibility list. About two-thirds of the Californian locations are in what are called extremely high cost areas, which means that the estimated per location subsidy necessary to convince a telco to build out broadband infrastructure is more than $1,200, according to the FCC’s funding model.

The upgrade cost as calculated by that model, less the $300 per location that the FCC thinks telcos should be spending regardless, will be the starting price for any particular census block. Bidders will make offers, presumably at progressively lower levels, until the FCC has decided that it’s getting the biggest bang for its billion or so bucks. How that decision will be reached is still to be determined.

If you add up the starting prices for all 1.5 million locations, the total comes to $5.8 billion. That’s more than four time the available cash, so there’s likely to be a lot of homes and businesses that’ll be left out. Unless bidders are feeling particularly generous, but I wouldn’t bet on that.

The total starting price for the locations in California is $434 million, which is about a thousand bucks per location more than the national average. Even if the FCC factors speed levels and cost differentials into its decision, in addition to the raw number of homes and businesses, Californian ISPs will have to shave more off their bids than those in most other states.

FCC spreadsheet with census block and cost data