CAF Phase II Auction

Connect America Fund (CAF) Phase II Auction, commonly called “CAF II Auction,” provides support to carriers to deliver service in areas where the incumbent price cap carrier didn’t accept CAF Phase II model-based funding and in extremely high-cost areas located within the service areas of the incumbent price cap carriers. After a reverse auction bidding process (Auction 903) completed in 2018, the FCC awarded a total of $1.49 billion over 10 years to more than 100 winning bidders to provide fixed broadband and voice services to over 700,000 locations in 45 states.

The FCC awarded winning bids in four service tiers, each with varying network speed requirements (with speeds ranging from at least 10 Mbps downstream/1 Mbps upstream (10/1 Mbps) up to a gigabit) and varying usage allowances (ranging from 150 gigabytes up to 2 terabytes of data), as well as two latency tiers (one for high-latency connections and one for low-latency connections). Winning bidders must offer service with speeds, usage allowance and latency consistent with their winning bids.

How the Program Works

CAF Phase II Auction winning bidders or their assignees must submit a long-form application to the FCC for review. If the long-form applicant satisfies the application requirements, the FCC issues a “ready to authorize” public notice and the long-form applicant will have 10 business days to submit a Letter of Credit (LOC) from a qualified bank, as well as a bankruptcy Opinion of Counsel (OOC) letter, to USAC. Note: Please see below for information about how to draft an acceptable LOC. Study Area Codes will be assigned in Attachment A of the relevant “ready to authorize” public notice. The FCC will issue “ready to authorize” public notices on a rolling basis.

After USAC has approved the LOC and OOC, the FCC will issue a public notice announcing authorization of support for the winning bid and directing USAC to begin disbursing payments. USAC will begin issuing monthly payments shortly after the public notice has been released.

Carriers participating in CAF Phase II Auction must fulfill their total build-out obligations over six years of the ten-year program, and meet interim service milestones along the way. Carriers must file and certify annually in the HUBB (High Cost Universal Broadband) portal all locations deployed to in the prior year, and should be prepared to provide documentation to the High Cost compliance team to substantiate build-out. The compliance team will conduct verification reviews of both interim and final milestones to confirm deployment to a sample of locations reported to the HUBB.

After a carrier has certified its 60 percent service milestone in the HUBB and USAC has verified that the milestone has been met, the carrier may reduce the value of its LOC to 90 percent of the total support received, plus the amount of support that will be disbursed in the coming year. After the carrier has certified its 80 percent service milestone in the HUBB and USAC has verified that the milestone has been met, the carrier may reduce the value of its LOC to 60 percent of the total support received, plus the amount of support that will be disbursed in the coming year.

After a carrier has certified its 100 percent service milestone in the HUBB and USAC has verified that the milestone has been met, USAC will prepare a final verification report and send it to the FCC for review. The carrier may be released from its LOC if the FCC determines that the carrier has satisfied all obligations under the program. Both USAC and the FCC will sign off on the release of the LOC, and USAC will return the LOC to the carrier and/or its bank.

Any CAF Phase II Auction participant that meets its total deployment obligation before the end of year six may be released from its LOC after review and approval by USAC and the FCC. If a carrier certifies in the HUBB that it has completed its total build-out ahead of the program schedule, the USAC compliance team will initiate the verification process as soon as possible.

In addition, because of the Covid pandemic, the FCC has issued several limited waivers (DA 20-677, DA 21-1502, DA 22-1304 and DA 23-1140) allowing CAF II Auction participants to comply with LOC rules for the Rural Digital Opportunity Fund (RDOF). This means that until Dec. 31, 2024, any CAF II Auction participant that continues to meet its deployment and reporting obligations may:

CAF II Auction participants should familiarize themselves with USAC’s verification review process and procedures, and understand what evidence they may need to supply for the compliance team to verify buildout, before requesting a review. A carrier must contact hcverifications@usac.org to initiate an on-demand milestone verification review after certifying its deployment data in the HUBB.

Once a carrier requests a verification review, it will receive an automated email that contains a blank process questionnaire (attached as a Word document) for carriers to download and complete as part of the pre-verification process. This questionnaire collects information about the steps and methodology that the carrier used to identify locations for broadband deployment and report those locations in the HUBB, as well as the types of evidence that carrier could provide to prove deployment. Carriers must upload the completed process questionnaire, as well as examples of evidence to substantiate speed, date and unit count, at one time using the link in the email to avoid a delay in processing of this information. USAC performs on-demand milestone reviews in the order that requests are received and typically takes about 90 days after sending an official announcement letter to a carrier to complete a review, although this timeline may be subject to change.

Any carrier participating in CAF Phase II Auction may be subject to non-compliance measures if it fails to meet its build-out obligations and/or other service requirements. Non-compliance measures may include additional reporting requirements, reduction of support or a draw on the carrier’s LOC.

Letters of Credit (LOC)

Carriers are required to submit LOCs, generated by their banks, to USAC for review and approval. Please refer to the following resources to ensure that a LOC contains all necessary information. USAC will reject LOCs that do not contain the proper information.