When 21 rural electric cooperatives decided to submit a joint bid to receive funding for gigabit broadband in the Connect America Fund II auction, their reason was a simple one. Consultants helping with bids were only allowed to work with a single bidder — and submitting a joint bid as the Rural Electric Cooperative Consortium enabled multiple co-ops to work with consulting firm Conexon.

Telecompetitor talked this week with Jonathan Chambers, one of two partners who created Conexon with the goal of seeing fiber brought to rural America. We discussed why the bid was successful, and what’s next for areas where there was no winning bid. Prior to founding Conexon, Chambers was the chief of the FCC’s office of strategic planning, where he worked on auctions, making him well qualified to offer insight on both topics.

The Rural Electric Cooperative Consortium (RECC) won a total of $186 million in the CAF II auction, which closed earlier this month, making it the third largest winner overall and the largest winner that pledged to build out service supporting gigabit speeds. Eleven other rural electric cooperatives also won funding in the auction, according to a press release from the National Rural Electric Cooperative Association.

Rural Electric Cooperative Consortium

The CAF II auction awarded $1.5 billion in Universal Service/ Connect America funding to 103 entities to go toward the cost of building out broadband to unserved or underserved areas, to be distributed over 10 years. Funding was awarded using a reverse auction process and winners were the entities that offered to deploy broadband at the lowest level of government support, with a weighting system favoring bids pledging to deliver service at higher speeds and with lower latency.

The RECC pledged to build low-latency gigabit service, giving its bid the most favorable weighting. Nevertheless, the amount of funding awarded was less than what the nation’s largest publicly held price cap carriers were offered to build out service at minimum speeds of 10 Mbps downstream and 1 Mbps upstream, as Conexon noted in a press release.

How can rural electric cooperatives afford to do this?

Chambers noted three reasons “and the most important is not one typically cited,” he said.

Reasons most commonly cited: Utility companies have poles, conduit, rights of way and other infrastructure that helps minimize make-ready costs. In addition, they have a lower cost of capital and are non-profit organizations.

The most important consideration, however, is time horizon, Chambers said.

“If you’re looking for a quick hit ROI [return on investment], this is not the business for you,” he said.

The biggest reason rural electric cooperatives can build out gigabit service with a relatively low level of Universal Service/ Connect America Fund support is that their time horizon “is measured not in years but in decades.”

Rural electric co-operatives, he said, have “been around for 80 years and will be around for another 80.”

Chambers praised the “covenant” approach that rural utilities follow, which drives them to provide service to everyone in their service area, even those that are the costliest to reach. He noted that rural telecom cooperatives are similarly motivated.

Moving Forward

Areas in the CAF II auction included parts of 20 states where the incumbent price cap carrier declined funding, as well as the highest cost areas, which were not part of the offering to the price cap carriers. Also included were certain areas that received bids in the rural broadband experiments auction but did not win funding, Chambers explained.

Chambers noted that all areas available for auction in all 50 states received bids in the CAF II auction. There are a considerable number of rural areas where there was no winning bid because bidders dropped out during the auction process, however.

Chambers anticipates that these areas will be included in a new remote area fund auction, but details of how that auction would work have not yet been determined.

Moving forward, Chambers sees opportunities for RECC members to continue to work together.

“They can share costs and data and the ones that have gone before can help pull up the others,” he said.

The 21 rural electric cooperatives in the RECC will bring gigabit broadband to parts of eight states. The cooperatives are: