I’m Still Confused by the RDOF Grants

On the day after the RDOF awards were announced I wrote a blog lamenting that it looked like the FCC had allowed wireless carriers to walk away with huge amounts of the grant funding while promising gigabit speeds. As I started digging in the details of the awards, it’s a whole lot more complicated than that.

For example, it turns out that some of the WISPs that won big awards actually bid to build fiber. That sounds wonderful if they actually build fiber, but when you look at the details of the bidding that looks unlikely.

Let me provide one example. I helped a client estimate the cost of building fiber in one of the RDOF areas that extended over two counties. We had determined in this specific set of Census blocks that it didn’t make sense to take anything less than 50% of the RDOF reserve price. The math showed there were not enough customers to support the debt that would be incurred by accepting less than that. This particular area was finally awarded to a bidder claiming to bid on fiber at 10% of the reserve price – only 20% of the grant that made sense for my client. I can envision operators who might have been satisfied at a 40% grant, but it’s inconceivable to me that somebody could seriously be proposing to build fiber with the small amount of grant they accepted for this one area. Only a bidder with a huge amount of equity could make this work, because no bank will loan money for a fiber project that doesn’t generate enough cash to cover the debt payments.

If this was an isolated example I wouldn’t be bothered by it, but there are similar examples all around the country. This explains why the total RDOF grant closed at only $9 billion instead of the anticipated $16 billion – some grant bidders are promising to build fiber for absurdly low amount of grant awards. And frankly, this is not financially possible.

I can only think of one possible explanation for this. I can only suppose that such bidders think the FCC will let them swap out to a lower-cost technology such as fixed wireless during the long-form process. These bidders have to be betting that the FCC will work with them rather than be embarrassed by reversing huge amounts of grant awards. We all have to hope that the FCC doesn’t let that happen. Any such agreements would screw ISPs that were willing to build fiber in these same areas. The FCC would be punishing WISPs that bid fixed wireless honestly at the 100 Mbps tier. It’s hard not to use the word fraud to describe somebody that accepted grant awards to build fiber if there was no intention of actually building fiber.

The other thing that confuses me is how many of the grant winners will get financed. The RDOF awards are paid over ten years, but the networks must be built in six years or less. Even should somebody win an RDOF award that covers 100% of the cost of construction, they have to finance roughly 50% of the project to get it built. Since most RDOF grants cover less than 100% of the cost of construction (particularly where bidders bid down the size of the awards), the average winner will have to raise a lot of money to build the required networks. When I see that some of the big grant winners are small companies, I have serious doubt about the ability to borrow the needed funding. There are winners of the grants that will likely need to borrow hundreds of millions or even more than a billion dollars to make these grants work. You can count the participants in this auction that are capable of borrowing hundreds of millions on one hand.

I am really disheartened by the FCC’s imposed quiet period for the grant winners. I understand why there is a quiet period before the grant bidding so that parties don’t collude on the bids. I’d really like to see the press asking the same questions I have to some of the grant winners. Right now a grant winner can hide behind the quiet period.

I’m really hoping the long forms are made public long before the FCC accepts or rejects a grant winner. I think the people who live in the areas covered by these grants ought to have an opportunity to see what the grant applicant intends in terms of technology and time frame. I think all of the ISPs that didn’t win the grants deserve to see that applicants aren’t being allowed to negotiate to use a different technology than the one they bid to win the grant. I also hope the FCC requires iron-clad proof of the needed financing to make the grants work. I also hope the FCC levies the maximum penalties possible against bidders that made bids that can’t be fulfilled.

I still think this grant is likely to be a disaster before it’s over. If the FCC does their job on the long forms, I foresee billions of dollars being handed back to the FCC – something that will be a major embarrassment for the agency. It will be even worse if the FCC does a poor job on the long forms since unqualified ISPs will eventually fail to deliver the promised networks. I also fear that the big telcos will pull another CAF II and take the awards and not build the promised broadband. I still haven’t stopped scratching my head wondering why a satellite company should get a grant to cover places it that will already cover automatically. I bet that the FCC staff is looking at the details of the grant awards and already wondering how they can come close to making this work. The more I dig into the details, the more messes I find, and that is disheartening.

12 thoughts on “I’m Still Confused by the RDOF Grants

  1. In my area, Charter won the bid in the gigabit tier. I read that meant 1000 down/500 up. As far as I know, there are no cable operators offering 500 Mb uploads over DOCSIS. Does this mean they’re transitioning to FTTH for residential subscribers?

    Also, can you link to the details on this auction? All I’ve found is the map.


    • In the RDOF Report and Order, there is a requirement for winner to identify service locations.

      “We conclude that winning bidders will be required to serve the number of locations subsequently identified in each respective area.

      …We accordingly direct the Bureau to seek comment on the updated location data and publish revised location counts no later than the end of service milestone year six, which we expect to be 2027.”

  2. When we can analyze the FCC’s public bidding results and see that providers that were allowed to bid in the 0 weight gigabit tier for either fixed wireless or ftth and bid support levels in eligible areas down to 1% like they did in Lincoln County Minnesota and across the country, it’s blatantly obvious as to what was just allowed to occur here. To see that the RDOF budget had the ability to award support levels to legitimate fiber builders in these areas with shovel ready projects at 70% had they not been forced to responsibly drop out due to illegitimate participation and irresponsible bidding by others is a travesty to the citizens in rural America. What’s even worse is that we have an FCC administration patting themselves on the back for the screw job they will most likely allow to be carried out to rural America once the long forms are complete.

    • Doug, you are 100% right on the need for extra capital on the average bidder. And you probably already knows it, but while I’m talking to some winners i learn there are banks and PE involved to back some of these large projects.

  3. All good points, that’s why I think that the satellite solution and some wireless solutions make sense. Yet, people want to run fiber to every home. That is a tough business model. Even in urban america it’s tough.

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