4. Consideration of Modification to the CASF Program

Parties to this rulemaking are asked to focus their opening and reply comments on the questions posed below.

4.1. Potential Program Changes Responding to Legislation

SB 1040, which was signed into law by Governor Schwarzenegger on September 25, 2010, establishes three accounts under the CASF:

· The Broadband Infrastructure Grant Account;

· The Rural and Urban Regional Broadband Consortia Account; and

· The Broadband Infrastructure Revolving Loan Account.

Both the Rural and Urban Regional Broadband Consortia and the Broadband Infrastructure Revolving Loan accounts are entirely new accounts under the CASF. Are existing CASF procedures and criteria suitable for administering these new accounts? The following questions focus on characteristics of the new accounts for which the existing CASF procedures and criteria may not be adequate.

    4.1.1. Funds for Consortia

The Rural and Regional Broadband Consortia Account provides funds for grants to eligible consortia to cover the cost of deployment activities other than the capital costs of facilities.

o What eligibility criteria should the Commission apply in selecting representatives/groups to be part of a consortium? For example, should prior experience with technology, prior experience working with community groups, and/or other factors be considered? How much weight should each criterion be given?

o What role should the Rural and Regional Consortia take in broadband deployment? What goals or objectives are appropriate for a consortium?

o What costs and activities should be eligible for funding?

o How should payments to a consortium be made? For example, should a consortium receive progress payments, similar to infrastructure grantees? (See Res. T-17143.) What documentation should be required as condition of payment?

    4.1.2. Loans

The Broadband Infrastructure Revolving Loan Account provides loans for capital costs of broadband facilities not funded by a grant from the Broadband Infrastructure Grant Account. Interest rate is to be determined by the Commission based on surveys of existing financial markets.

o Who should be eligible to apply for loans?

o May an eligible entity apply for both a grant and a loan at the same time, with the Commission deciding whether a grant, a loan, or both should be awarded?

o Should there be minimum and maximum amounts for the loan?

o What criteria and standards should be adopted for evaluating loan applications?

o What financial indices should be consulted to determine interest rates and when and how to revise the rates?

o Over what period should the loans be repaid?

o What security should be provided?

o As to terms and conditions, are there existing models for revolving loan programs that the Commission should follow?

4.1.3. Entities That Are Not Commission-Regulated

It appears that, with the ARRA funds now fully allocated, entities that are neither CPCN holders nor registered wireless carriers are no longer eligible for grants under the Broadband Infrastructure Grant Account. (See Pub. Util. Code
§ 281(c)(2).)

○ Would/should entities that are not regulated by the Commission be eligible recipients under the Broadband Infrastructure Revolving Loan Account?

Many entities that are not Commission-regulated are eligible to participate in consortia, and an eligible consortium is not required to have as its lead fiscal agent a Commission-regulated entity. (See Pub. Util. Code § 281(d).)

○ To ensure appropriate accountability, what requirements should the Commission adopt for a fiscal agent or other consortium member that is not Commission-regulated?

4.2. Other Potential Changes for the Existing CASF Infrastructure Grant Program

We have now had two years of experience implementing the CASF grant program. We have monitored the projects approved for funding, and applicants' and recipients' compliance with program requirements. We have had the benefit of comments from parties on draft resolutions. Finally we have had suggestions made in the Petition for Modification (filed Sept. 13, 2010), by the Division of Ratepayer Advocates (DRA), to which several parties have responded (and DRA has replied to the responses). This extensive background prompts us to revisit the existing CASF process, requirements, and criteria. The following questions and proposals are drawn from our experience and the input received.

4.2.1. Eligible Applicants; Available Funding

Currently, CASF provides funding for construction of broadband infrastructure in unserved and underserved areas, as defined in Res. T-17143. It provides matching funds of 40% of the project capital cost; the applicant is responsible for the remaining 60%. For projects receiving funds under the ARRA, it provides matching funds of 10% of the project capital cost; of the remainder, roughly 80% of the matching funds are sourced from the ARRA, and the applicant is responsible for 10%. Under existing rules:

· 40% CASF funding is open to any of the following: [i] a CPCN holder; [ii] a wireless carrier that is registered with the Commission; [iii] an entity that has a pending CPCN application (the award is subject to the approval of its CPCN); or (iv) a consortium, provided that the consortium's financial agent is an entity holding a CPCN or a wireless carrier registered with the Commission.
(See D.07-12-054 and Res. T-17143.)

· 10% CASF funding is open to an entity other than a CPCN holder or a registered wireless carrier, provided that the entity is also applying for ARRA funding (See AB 1555
[Ch. 24, Stats 2009], D.09-07-020, and Res. T-17143.)

o Because ARRA funding has now been fully allocated, should CASF funding opportunities still be offered to
non-CPCN holders or non-registered wireless carriers?

o Should the CASF funding cap of 40% be increased, considering that [i] some applicants have been unable to secure the 60% matching funds, and [ii] funds from the ARRA are no longer available?

4.2.2. Definition of Unserved and Underserved Areas

Existing CASF rules limit funding to broadband infrastructure for areas determined to be unserved and underserved. An "unserved" area is an area that is not served by any form of facilities-based broadband, such that Internet connectivity is available only through dial-up service or satellite. An "underserved" area is an area where broadband is available, but no
facilities-based provider offers service meeting the benchmark speeds of at least three mbps download and at least one mbps upload.

Under the ARRA, "unserved" and "underserved" are defined as follows:

Unserved area: a proposed funded service area, composed of one or more contiguous census blocks, where at least 90% of households in the area lack access to facilities-based, terrestrial broadband service, either fixed or mobile, at the benchmark transmission speeds (above). A household has access to broadband service if the household can readily subscribe to that service on request.

Underserved area: a proposed funded service area composed of one or more contiguous census blocks. It may be either a "Last Mile" or "Middle Mile" project.

A proposed funded service area qualifies as underserved for "Last Mile" projects if at least one of the following factors is met:

· No more than 50% of the households in the proposed funded service area have access to facilities-based, terrestrial broadband service at greater than the benchmark transmission speeds (above);

· No fixed or mobile broadband service provider advertises broadband transmission speeds of at least three mbps downstream in the proposed funded service area; or

· The rate of broadband subscribership for the proposed funded service area is 40% of households or less.

A proposed funded service area may qualify as underserved for "Middle Mile" projects if one interconnection point terminates in a proposed funded service area that qualifies as unserved or underserved for Last Mile projects.

o Should the CASF definitions be revised to conform with the NTIA/RUS definitions of unserved and underserved areas [Federal Register/Vol. 74, No. 130, July 9, 2009, Joint Notice of Funding Availability for the Broadband Technology Opportunities Program (BTOP) and the Broadband Initiatives Program (BIP)]? Alternatively, should the Commission revise these definitions based on the goals set forth in the 2007 report of the California Broadband Task Force?

4.2.3. More Transparency in Handling Applications

Under the current application process (established in Res. T-17143), only the census block groups and maps of proposed areas are posted on the CASF website. This affords an opportunity for the public and other carriers to challenge the areas proposed for CASF funding, and for other qualified entities to submit counterproposals. However, the applicant and the technology proposed are not posted. The purpose of withholding this information is to provide a level of confidentiality for aspects of an application that may be competitively sensitive. (See D.09-07-020 at 9, footnote 6.) Only when the draft resolution responding to an application is issued for public comment are the full contents of the application [identity of the applicant, the technology proposed, and other information submitted pursuant to Res. T-17143] made available.

DRA, in its petition, proposes a fully transparent process, in which applications are made available immediately to the public and are subject to public comment.

o Should the process be fully transparent as proposed by DRA?

o Should the Commission require an applicant to provide additional public notice of its application targeted to households in its proposed area (as suggested by The Utility Reform Network in responding to DRA's petition)?

    4.2.4. Criteria for Handling Applications

1) Multiple Competing Applications

In Res. T-17143, the Commission adopted the following criteria for
(i) handling multiple competing applications covering the same area, and
(ii) ranking projects to allocate the CASF funds if the total amount applied for exceeds $100 million (the amount available from the CASF).

o Should the scoring criteria or weights be modified? (We note that the scoring criteria have so far only been applied once.)

2) Single Application for a Proposed Area

Where there is only one application for an area, the Commission has been willing to approve funding for a project that would fall short of the benchmark speeds. [See Res. T-17143 at 3-4, Res. T-17233 at 12, Res. T-17195 at 6.]

o Should the Commission increase the benchmark speed to four mbps download and one mbps upload? The increase would conform with the Federal Communications Commission's Sixth Broadband Deployment Report, which endorsed the minimum speed component of the national broadband availability target proposed in the National Broadband Plan.3

o Should the Commission revise the criteria to include an industry standard cost and/or a ceiling cost per household? If so, how should the industry standard and ceiling cost per household be determined? Should the industry standard or ceiling cost depend on the proposed technology?

o Where there is only one application for a proposed area, what other criteria should be used in evaluating the application?

    4.2.5. Open Access and Net Neutrality

In its petition, DRA proposes that as a condition for receiving a CASF grant, the recipient should be required to open its network to competitive providers.

o Should the Commission require a recipient to share its CASF-funded network with competitive providers?

    4.2.6. Adoption/Affordability

An applicant is required to submit the projected number of households that will benefit from the deployment of broadband in the area proposed. The existing program, however, does not require the applicant to submit a plan to encourage adoption or to offer an affordable monthly rate in the proposed area.

o Should a CASF applicant be required to submit a plan for encouraging adoption in the area proposed?

o Should there be a cap on monthly rates and/or should installation and other charges be waived for a specified period?

    4.2.7. Performance Bond

A performance bond is required if an applicant's 60% matching funds do not come from its own capital budget but are obtained from outside financing sources. Some recipients have had difficulty in obtaining the performance bond, causing a delay in their project start date.

o Should the Commission modify its performance bond requirements, or provide alternatives, to minimize delays but ensure performance? Should the performance bond requirement be replaced with another form of "security?" If so, what?

4.2.8. Information and Documentation Requirements

Resolutions T-17143 and 17233 list the information and documentation that an applicant must submit during the application process and that a recipient must submit after funding approval.

o Should an applicant be required to provide additional information to demonstrate the technical and financial soundness of a proposed project? For example, NTIA/RUS [Federal Register/Vol. 74, No. 130, July 9, 2009, Joint Notice of Funding Availability for the BTOP and the BIP] require much additional information, such as the following:

· Resumes of key management personnel;

· Description of the applicant's readiness to manage a broadband services network;

· Organizational chart showing any parent organization, subsidiaries, and affiliates;

· Itemized budget of the costs of the project, including the ratio of loans to grants, and any other source of funding;

· Explanation of how the cost per household is determined; if applicable, explanation of why the project cost is relatively higher on a per household basis in the proposed area compared to other areas using the same or similar technology;

· Financial analysis and projections (income statement, cash flow, balance sheet, etc., and assumptions used) on the sustainability of the project, including subscriber data and adoption rates; and

· Description and schematic diagram of proposed plan and network design, including location of infrastructure and facilities (backbone and access line locations, primary tower, repeater tower, antenna placements, etc.).

4.3. Issues Common to the Existing CASF Program and the Expanded CASF Program Under SB 1040

    4.3.1. Securing Performance

The State is spending large sums of money in grants and loans to support broadband deployment in unserved and underserved areas.  The effectiveness of these grants and loans in achieving these goals is a clear concern in the Commission's decisions, as well as in the statute.  (See Pub. Util. Code § 281(f).)  The Commission therefore is committed to ensure that grantees and loan recipients perform in accordance with the conditions in their grants and loans.  Performance bonds and progress payments are two safeguards that the Commission has been using to date in the CASF program.

○ Should the Commission adopt additional or alternative means of securing performance?  If so, please describe fully.

○ Are appropriate performance bonds available for purposes of the CASF projects?  Are there further steps the Commission should take with respect to the availability of performance bonds?  If so, please describe fully.

4.3.2. Utilizing Existing Right-of-Way and Existing Infrastructure

In the context of rules to govern the rapidly evolving telecommunications industry, The Commission has consistently supported using the public
right-of-way and existing infrastructure such as utility poles to facilitate the development of competition and the extension of new or advanced services. 
(See, e.g., D.98-10-058, 82 CPUC2d 510, 544.)

○ To what extent may resources such as the public
right-of-way and existing infrastructure be utilized in deploying broadband to unserved and underserved areas in California?  Are these resources currently under-utilized for this purpose?  If so, please describe fully.

○ Should the Commission promote participation of
right-of-way owners such as railroad corporations and Caltrans in broadband deployment, either as partners in such projects, members of consortia, or otherwise?

○ What other public or private entities may be able to facilitate broadband deployment?  What role should the Commission play in involving such entities?

3 The National Broadband Plan recommends, as a national broadband availability target, that every household in America have access to affordable broadband service offering actual download (i.e., to the customer) speeds of at least four mbps and actual upload (i.e., from the customer) speeds of at least one mbps.

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