Fixing the RDOF

A bipartisan group of legislators recently sent a letter to the FCC asking for transparency during the due diligence review of the long forms for the RDOF grants. The group was led by Representatives James E. Clyburn (D-SC) and Tim Walberg (R-MI) and Senators John Thune (R-SD) and Amy Klobuchar (D-MN) and signed by 160 members of the House and Senate. Here is the key paragraph of the letter:

As responsible stewards of USF funds, we ask that the FCC redouble its efforts to review the long-form applications that will now be submitted.  We urge the FCC to validate that each provider in fact has the technical, financial, managerial, operational skills, capabilities, and resources to deliver the services that they have pledged for every American they plan to serve regardless of the technology they use. We also strongly encourage the FCC to make as public as possible the status of its review and consider opportunities for public input on the applications. Such transparency and accountability will be essential to ensure the success of this program and to minimize any opportunities for fraud or abuse.

The RDOF grants were awarded near the end of last year in a reverse auction where bidders who were willing to take the least amount of grant subsidy won grant funding to build broadband to some of the least populated parts of the country. This letter was prompted by major concerns about some of the winners of the grant being able to execute on what they had promised in the winning bid. Just a few of the concerns that prompted the letter include:

  • Sketchy Technologies. Some bidders claimed to be able to deploy gigabit fixed wireless technology in rural America – a technology that nobody I know thinks exists.
  • Huge Financial Commitment. Since the grants are paid over 10 years but must be built faster, grant winners not only have to raise the money not provided by the grant but must borrow against future grant payments. There are some big awards made to small companies that look impossible to finance. This issue is magnified by cases where the winning bidders took only a small fraction of the grant funds that were on the table.
  • Build Commitment. The grants require quick construction, with 40% of the build to be completed by end of the third year. It doesn’t seem reasonably feasible for small companies that won big awards to build that quickly. Can satellite companies launch enough satellites to get the needed coverage in 3 years?

The letter asks for a few important things. First, it asks that the review process be made transparent. The process of approving grant recipients is referred to as the long-form process, and they are asking that these forms be made available for public review and comment. In the past, long-form reviews were done behind the scenes, with no public scrutiny of the promises made by grant winners.

The legislators also asks the FCC to conduct due diligence to made sure that grant winners demonstrate the technical, financial, managerial, and operational capacity to do what they’ve promised. This is going to be hard for the FCC since this is a regulatory agency and is not stocked with the experts that can make such complicated and nuanced determinations. I’ve always recommended that big federal grants be made as block grants to the states for this exact reason – the FCC doesn’t really belong in the business of picking commercial winners and losers.

The biggest question that my clients are asking is what happens if the FCC disqualifies a grant winner. Would the grant funding revert to the second-highest bidder? That could be a problem because there are quite a few examples where multiple questionable bidders were going after the same Census blocks. If a grant award is canceled would the funds and the Census blocks get pushed into the second round of RDOF? That seems unfair to the people that live in these areas because it seems likely there is going to be a significant delay until the next round of RDOF. It also seems unfair to bidders who were willing to build rural fiber but got outbid by questionable winners.

The FCC has tied itself a Gordian knot and it’s going to take a long time to sort out this first round of the grant. This grant is such a mess that the agency ought to strongly consider something different for the second round of RDOF – because the reverse auction brought too many problems that could have been avoided.

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