MOBILITY FUND OVERVIEW 18 th Annual Oregon Connections Telecommunications Conference Hood River, Oregon Mark P. Trinchero Davis Wright Tremaine LLP October 25, 2013

Universal Service Transformation and the Mobility Fund?  Background of Universal Service Funding – Historically, “implicit” support hidden in Inter-Carrier Compensation rates – Telecom Act of 1996 Created an Explicit fund – Supported multiple carriers: Identical Support Rule  Concerns about size of USF – Supporting multiple carriers in the same area – FCC eliminated Identical Support Rule and Capped Mobile Support at 2008 Levels – Competitive carrier support ≤ ILEC in the area

Universal Service Transformation and the Mobility Fund?  FCC’s “Transformation Order” Set Budget for USF Program For First Time – Wireline carriers: Connect America Fund ($4B) – Wireless carriers: Mobility Fund (two phases) – New funds for Remote Areas and Tribal Lands – Rural Health Care Fund becomes Healthcare Connect Fund – Schools and Libraries Fund remains – Low-Income (Lifeline) Fund remains, with substantial reforms

Mobility Fund Structure Phase I –$300M (plus separate $50M for Tribal lands) –Awarded by reverse auction (first ever) –One-time; no continuing support Phase II –$500M annually –Continuing support each year –Awarded for a period of years (period TBD)

Mobility Fund – Phase I What areas were eligible? –Unserved by either 3G or 4G wireless service 3G = at least 50 kbps uplink, 200 kbps downlink 4G = at least 200 kbps uplink, 768 kbps downlink –Determined at the census block level (is the “centroid” of the census block unserved?) Who could bid in an area? –Designated as an “Eligible Telecommunications Carrier” (ETC) in the area –Access to spectrum in the area –Certify to financial and technical qualifications

Mobility Fund – Phase I (cont.) Winning Bidder Obligations –For at least 75% of the road miles in the bidding area, deploy either 3G service within 2 years, or 4G service within 3 years –Service must include voice, which must be available on a stand-alone basis –Reasonably comparable rates –Offer co-location on new towers in the area, on reasonable terms –Comply with FCC data roaming obligations –Drive testing, reporting, record retention, etc.

Mobility Fund – Phase I: Auction 901 Auction 901 Procedures –Identified > 460,000 census blocks that lacked 3G or better mobile service, and also contained road miles (out of ≈ 8,200,000 census blocks in US) –Determined number of road miles in each census block (total of 650,000 road miles) –For bidding purposes (except for Alaska and some tribal lands), aggregated these census blocks by census tracts –6,100 biddable census tracts –Bids were submitted based on dollars/road mile –Reverse auction: lowest bidder wins

Mobility Fund – Phase I: Auction 901 Auction 901 Procedures (cont.) –$300 million cap for overall Phase I support Bids ordered from lowest to highest per road mile “Work up the list” until the $300M is gone Tribal bidders received 25% advantage when bidding on their own tribal areas (but no reduction in support) –Process means there are “two ways to lose” your bid: Not the lowest bid in the census tract, or Lowest bid, but bid too high in comparison to other bids nationally (i.e., the $300M was already allocated to lower bids)

Mobility Fund – Phase I: Auction 901 Auction 901 Procedures (cont.) –Designed to fund “the least costly of the most costly” areas –Must cover at least 75% of road miles, but support prorated for road coverage between 75% and 100% –Competing with other bidders in the same area, and with all bidders in all other areas

Mobility Fund – Phase I: Auction 901 Auction 901 Results (announced 10/3/2012) –52 qualified bidders; 33 submitted at least one winning bid –894 bids submitted; 795 winning bids (about 13% of biddable cnsus tracts) –31 states and 1 territory had winning bids –Winning bids covered c. 83,000 road miles (out of a 650,000 eligible) –Winning bids ranged from $130/road mile to $45,000/road mile –Average winning bid: $3,593/road mile

Mobility Fund – Phase I: Auction 901 Auction 901 Results: Top State Winners Total Support Road Miles $/Road Mile ID $32,840,434 2,697 $ 12,177 CO $32,649,205 3,985 $ 8,193 NC $26,108, $ 26,861 TX $24,916,904 14,364 $ 1,735 WY $22,831,980 13,577 $ 1,682 NV $21,060,478 2,776 $ 7,587 NM $17,895,266 17,920 $ 999 VA $12,414, $ 16,487 WV $10,611, $ 30,846 OK $10,376,072 1,339 $ 7,749

Mobility Fund Phase I: Eligible Areas Example

Mobility Fund Phase I: Winning Bids Example

Winning Bids in Oregon and Washington  Oregon had one winning bidder on two census tracts in Baker County – Total Awarded Amount = $123, – Covering road miles mile  Washington had two winning bidders on seven census tracts spread across Cowlitz, Grant, Lewis, Lincoln and Skamania Counties – Total Awarded Amount = $10,139, – Covering mile to $24,753.00/road mile

Tribal Mobility Fund Phase I: Auction 902  Scheduled for December 19, 2013 – Short Form Applications Originally Due By COB October 9 th – Federal Government Shutdown Resulted in Suspension – Awaiting New Deadlines – Will the December 19 th date slip?

Tribal Mobility Fund Phase I: Auction 902 (cont.)  $50M Set Aside for Tribal Lands – Most procedures similar to MF I Auction 901 with some important exceptions – Tribally-owned entities are favored with: 25% Bidding Credit Do Not Need to Have ETC Designation Prior (just pending application) – Remains Difficult for Many Tribal Entities Trouble Obtaining Letters of Credit

Mobility Fund – Phase II Further Notice of Proposed Rulemaking (FNPRM) in MF Phase II issued as part of Transformation Order Additional Public Notice (PN) refining issues: DA in WT Docket No (12/21/2012) The resolution of many important issues remains uncertain

Mobility Fund – Phase II Overall Structure (as set forth in FNPRM) –$500M annually (up to $100M of this will be reserved for Tribal Areas, including AK) –Distribution by reverse auction –Purpose: “ensure 4G wireless services in areas where such service would not otherwise be available” –Eligibility criteria to be same as MF I –Service must include voice service, and voice service must be offered on a stand-alone basis –Public interest obligations similar to MF I

Mobility Fund – Phase II Refining the Issues: The 12/21/2012 PN –Eligible Areas –Prioritization of Eligible Areas –Term of Support - 10 years? –Support from multiple mechanisms (MF II, CAF)? –Tribal Priorities - Interaction with 25% tribal bidding credit?

Mobility Fund: Final Observations $300M in Phase I covered just under 13% of unserved road miles It will take a lot of money to cover all unserved road miles (CTIA has estimated $7.8B to $21B) Amounts in Phase II ($500M annually) plus Phase I ($300M one-time) are dwarfed by annual wireless industry capital expenditures ($20B+)

Mobility Fund: Were You Moved? Thank You! Questions?