Economists Mostly Praise FCC CAF II Auction Design, Though Have Some Concerns
The FCC Connect America Fund Phase II subsidy auction got largely good marks from economists on a panel at an FCBA event Monday. All three welcomed the CAF II reverse auction (lowest bids win) set to begin July 24, which will make available up to $198 million per year over 10 years in high-cost support for broadband and voice services in areas traditionally served by large telcos. They expressed concerns about some details, and one economist estimated up to 30 percent of the funds could go unclaimed, though a second questioned that estimate, and a third didn't see that as a problem if it occurs.
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"This is how money should be spent," said Peter Cramton, a professor at the University of Cologne and the University of Maryland, and an auction expert. He credited the FCC with making its rules simpler than originally proposed in an effort to attract more bidders, particularly smaller ones. He lauded the agency for imposing restrictions on package bidding that favors large bidders and for allowing proxy bidding to simplify participation by small bidders. It could have been a bit simpler, he said, but the agency did a "very nice design" and improved its rules while balancing interests.
The auction has a "good, solid" basic design, said David Salant, a professor at the Toulouse School of Economics, senior managing director at FTI Consulting and another auction expert, who also believes the FCC tried to balance interests. He commended regulators for tackling the complications of setting up a "descending clock procurement auction," which has been used in the energy sector but with fewer areas than the 30,000 eligible census block groups (CGBs) up for grabs in the CAF II auction. Salant and Cramton said the FCC decision to make CBGs the smallest geographic unit was a reasonable choice.
Technology Policy Institute President Scott Wallsten called the plan a "big accomplishment," while questioning the source of the funding. He said the FCC's broadband performance tier weights roughly aligned with his group's research (see 1710190049) on consumer willingness to pay relatively more for increasing data speeds from 10 Mbps to 50 Mbps than for increasing speeds above that. But he said FCC "latency" weights impose too harsh a penalty on higher latency (greater data delays). "It's a satellite penalty," he said. The auction also doesn't factor in consumers' timing preference for having broadband available sooner rather than later, he said, suggesting there could have been a discount created for accelerated deployment, though he acknowledged that would add complexity. "All these criticisms aside, I'm still pleased they're doing the reverse auction," he said.
Salant could "almost guarantee" some funding support won't be won, estimating between 10 and 30 percent. Disagreeing with Salant's assumptions, Cramton was "much less concerned" about the possibility there would be unspent money, and would be "quite surprised" if 30 percent of the funding isn't won, and if it's only 10 percent, "So what?" Even if it's 50 percent, he said, it could be auctioned off again. Wallsten agreed some money likely wouldn't be spent and didn't see a problem. Salant said he wasn't saying any unspent money would be bad but that it raised policy questions.
Salant and Cramton said the number of rounds is largely up to the FCC, which can speed up bidding. Cramton suggested 20 to 50 rounds were possible.
Cramton is concerned some broadband performance details haven't been finalized, which complicates bidder plans. He said the FCC should want lots of participants to bid aggressively for support: "Competition is the antidote for gaming -- and good rules." He said it could take years to judge the broadband performance of winning bidders. Salant agreed it will be difficult to evaluate the success of the auction. Wallsten said the best criterion would be the number of consumers who sign up for new or improved broadband service in targeted areas.
FCC Rural Broadband Auctions Task Force members outlined auction rules and procedures on another panel. There are 975,000 locations in 48 states eligible for support, said one, who noted no CAF II support will be awarded until the $1.98 billion 10-year budget "clears."
CAF II Notebook
The Office of Management and Budget approved CAF II information collection for three years, says an FCC rule for Tuesday's Federal Register taking effect that day.