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Regulation - What is it Good For?

Let’s Try Another Approach – Part 1

Anybody reading this blog already knows that I am not a fan of the recent RDOF grant program. If the FCC doesn’t figure out a way in the next few months to cancel the worse of the grant awards, when we look back six years from now we’ll find that half or more of the funding was wasted. The FCC has wasted money before, like with the $11 billion from the CAF II for big telcos that was nearly all wasted – but solving the rural digital divide has become too important to keep throwing away grant money.

The RDOF grant process was doomed before it ever got started. The amount of grant award in each Census block is based upon a massively flawed FCC cost model that pretends to understand the difference in broadband construction costs around the country. This unfortunately means that the FCC offered far too much grant funding in some places, and not enough in others. This is a nuance of the grant that everybody seemed to have missed – that the FCC pre-determined the amount of grant available for each Census block. I know areas where the FCC was offering 20% more than the cost of building a fiber network, and others where it wasn’t offering half of what is needed. The FCC’s faulty cost model does not accurately reflect the cost of getting onto bad poles or of encountering rock when burying fiber. We saw folks offering to build fiber in places where the FCC awards were overly generous, but no landline ISPs offering to build broadband where the awards were too low. People living in the Census blocks where the FCC awards were too small were doomed from the start to not see a decent broadband solution.

The FCC really blew it when it came to vetting the financial wherewithal of applicants. They allowed small companies with limited experience and weak balance sheets to claim huge amounts of funding, with the largest winning more than $1 billion in grant funding. This was not hard to foresee, and companies should have been given bidding limits according to their financial capability. Tackling this after the auction is over is a real mess.

The FCC also didn’t put any common sense stops in place on the bidding. There are a huge number of Census blocks where the grant was finally awarded at less than 5% of what the FCC offered – many as low as 1%. Some of these recipients say they are going to build fiber in areas where the construction cost per passing to build fiber is more than $15,000. Does anybody really believe that a grant recipient will build fiber if they accepted only a few hundred dollars of grant per passing in these high cost places?

Then there were problems due to the FCC not taking the time to do its homework. I’ve seen maps showing grant awards to places like large airports, giant parking lots, malls, and other assorted empty Census blocks. The FCC couldn’t afford to have somebody in the last year spend some time looking at the grant areas on Google Earth? Such areas should never have been in the grant to start with and demonstrate incompetence at the FCC. Hopefully, these grant awards will be canceled.

The RDOF grant also allowed grants to be awarded for technologies that should never have been allowed in the grants. In another giveaway to big telcos there were awards made to enhance DSL – does this FCC really think there is any life left in rural copper? Technology as slow as 25 Mbps was allowed in the auction – all due to the FCC not having the backbone to define broadband at a more reasonable and higher speed. Perhaps the biggest dollar problem was letting bidders claim faster technology speeds than are conceivably possible – such as bidders that claimed the ability to build gigabit fixed wireless. All the WISPs I know are irate about this since they were outbid in the auction by bidders that lied about technical capabilities. Such grant applications must be nixed in the long-form process or the FCC will have allowed fraud into the grant process. The headscratcher that has generated a hundred articles is why the FCC is allowing grants for satellite broadband – a technology that is going to reach all of these places anyway, without the grant money.

Maybe the biggest problem with the RDOF process is that the penalties for cheating are too small. This was the rule that doomed CAF II. The big telcos did the math on CAF II and figured they could do absolutely nothing and still keep a significant percentage of the grant dollars. The penalty for taking RDOF money and doing nothing ought to require repayment of more than 100% of the grant – with a repayment that cannot be hidden behind a bankruptcy.

It’s hard to know which of these problems was the worst, and they all contributed to the disaster we see at the end of the grant. This FCC has loudly complained about fraud and waste in the universal service fund. But it turns out the biggest waster of the funds is the FCC itself. It tossed away $11 billion in the CAF II awards and is on the path to toss away more with the RDOF awards.

The second part of this blog, to be published tomorrow will suggest a better way to handle large FCC grants. We need to find a better way to do this because I can’t see the FCC fixing all of the problems I listed above.

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