RDOF in Trouble?

In June, three Senators – Roger Wicker, Cindy Hyde-Smith, and J.D. Vance – sent a letter to FCC Chairperson Jessica Rosenworcel asking for relief for RDOF award winners. The Senators said that the RDOF subsidies are no longer adequate due to massive increases in construction costs to build and operate the promised RDOF networks. The Senators asked that the FCC particularly consider relief for RDOF winners that have fewer than 250,000 broadband customers.

More recently, a coalition of RDOF winners sent a similar letter pleading for relief from the same issues. The RDOF winners cited much higher costs due to both the pandemic and to actions taken by the federal government with funding programs that were not in place at the time of the RDOF awards. The Coalition of RDOF winners offered various possible solutions the FCC might consider to help the winners meet their RDOF obligations:

  • Extra funding to RDOF winners that have “affirmatively requested such funding.”
  • A short amnesty window to let RDOF winners withdraw from RDOF if the FCC is not going to provide supplemental funding.
  • Earlier payments for the RDOF funds due from years 7-10.
  • Add an additional eleventh year of RDOF subsidy.
  • Provide relief from all or some requirements related to the letter of credit requirements.

As a reminder to readers, the RDOF program provided a 10-year subsidy to cover some of the costs of deploying broadband in unserved areas. The money was awarded in a reverse auction that ended in November 2020, where the lowest bidder for the subsidy in any given Census block won the subsidy. The FCC originally considered awarding as much as $16 billion in the auction. However, Many ISPs bid the prices lower than expected, and only $9 billion was claimed at the close of the auction. Some ISPs withdrew after the auction and the FCC disqualified some large bidders like Starlink and LTD Broadband. Ultimately, only $6 billion of subsidies are now in play.

Chairwoman Rosenworcel quickly responded to the three Senators and largely closed the door on the Senator’s requests. She pointed out that the FCC reserves the funding through the Universal Service Fund each quarter to pay the $6 billion subsidy and that there is no additional funding to increase RDOF payments. She also reminded the Senators that the rules and penalties for withdrawing from RDOF were clearly known by bidders before they bid in the auction and that the penalties are in place to ensure that RDOF winners fulfill their obligations.

The entire RDOF process has been badly flawed since the beginning. Some auction winners bid down prices a lot lower than expected. The areas that were available in many places are scattered and don’t create a reasonable footprint for building a broadband solution. There clearly has been an unprecedented amount of inflation since the awards were made. And to be fair, the RDOF awards were made after the pandemic was in full force, and winners could reasonably have anticipated that there would be economic consequences of a major pandemic. Even without the last year of high inflation, it would be hard not to expect some kind of economic turmoil during a 10-year subsidy plan.

I have no doubt that many RDOF winners are now looking at a broken financial model for fulfilling their promise. They are stuck with a terrible dilemma – build the promised networks and have a losing business or pay a substantial penalty to withdraw from RDOF.

It’s disturbing that both the Senators and some RDOF winners are asking for a soft landing for anybody that wants to change their mind and withdraw from RDOF. The RDOF footprints have already been off-limits for other federal grant programs that could have brought faster broadband to these areas. It’s fully expected that the BEAD grants will start being awarded next year, and it would be a true disaster if ISPs default on RDOF after those grants have been awarded. That could strand large numbers of folks with no broadband solution.

This is a dilemma for the FCC. No matter what the agency does, there will likely be additional negative outcomes if RDOF winners are unable to fulfill the pledge to build and operate the promised networks. I’ve always expected the program to have eventual troubles since many of the winning auction bids were lower that what seemed to be needed to create a sustainable business. But I never thought that we’d be seeing requests for a major rework of the program less than three years after the end of the auction.

10 thoughts on “RDOF in Trouble?

  1. How about giving RDOF award winners a short period of time to forfeit their award with only modest or no penalty? This might incentivize them in ways that would allow the forfeited areas to become eligible for BEAD grants, benefiting the residents of those areas and reducing the risk of having RDOF forfeits too late in the process to be included in BEAD.

    • Isn’t that what the article’s bullet-point “A short amnesty window…” means? So yeah, the ISPs in question are in fact already asking for that as an alternative to their request for more dough.

  2. Yes, but the FCC allowed Starlink to bid on ALL CBGs and that was the impetus that created such low bids because the bids couldn’t begin to clear until 70%. Starlink drove down the price, then they weren’t awarded anything because the FCC then decided thei9r technology wasn’t worthy, so you have to ask why they thought it was worthy enough to give them fiber level bid power. Those of us small ISPs that had been building fiber in the rural areas for years had to bid to survive, then the prices were driven so low that we had to stay in and really suffer the financial issues, or let the bigger players bid us out and walk over top of us. I am one of the ones that hired the firm to help write those letters and I make no apologies.

    • Starlink submitted, in my mind, a proposal that matched the costs of deployment inside the USA quite well. It was a shame it was rejected. They have, without RDOF funding, managed to cover 1.5m customers worldwide by now, and would probably have covered the eastern part of the USA by now had they got funding.

  3. This debacle is due to incompetent, feckless public policymakers who have crafted U.S. telecom policy over the past four decades. With short term thinking focused on “broadband speed” vs. modernizing to fiber to the prem infrastructure, they put themselves in a position to be punked and gamed such as here.

  4. Hindsight is 20/20…”And to be fair, the RDOF awards were made after the pandemic was in full force, and winners could reasonably have anticipated that there would be economic consequences of a major pandemic.” There is no reasonable way that anyone could have anticipated a rise in costs. But even if they did, what I think the real issue is the access to the capital. Sure I knew full well that I bid low as a defensive position but, at the time, I still had a bank that was willing to loan me money. In the 18 months it took to authorize the award, my bank, plus many others I talked to, all started drying up. No one wanted any risks. And because of the rise of costs, the project went well above reasonable loan levels and banks, as well as private money, just no longer had an appetite for that kind of project and risk. We even tried accessing the bond market to help fund our project and that even failed due to those types of investors were risk shy and wanted to see large equity position.

    I’m still good with meeting our RDOF obligation. I think all RDOF recipients are good on NOT defaulting their award. We want to help bring internet to the unserved and underserved rural areas. The main thing I’m asking for is access to capital. Sure I’ll take additional supplemental funding but if the federal government can at least provide a low interest, long-term loan then that will enable us to meet our RDOF obligations.

    Like Jim Garrett, I’m also in the RDOF Coalition and that point was asked for in the ex parte….”While not discussed in detail during the meeting, other forms of relief could include making low interest loans available to RDOF winners, among other things.” Though most articles are missing that point.

  5. The low bids were ridiculous at the time they were submitted. ISPs (many you had to google) with big aspirations that did not consider ANY calculated risk into their financial models. Equipped with shiny new trucks and bore rigs, they are now crying that their bids were too low because the economic environment has changed; looking for a bail out due to their bad assumptions and lack of sophistication. Their intent was to put stakes in the ground to block entry, and sold that to their capital partners. Figure it out or withdraw.

  6. This is profoundly interesting information and the comments are incredible insightful. I have little more to say aside from the fact that this gives rise to a lot of thought and questions so I’ll come back once I’ve digested it all, but the first question that came to mind was, “Why the low ball bids?”, which brings up even more questions.

  7. Instead of trying to get out of it, try to get it done like the spirit of the funding originally intended. Copilot Networks is helping RDOF winners do just that…we Engineer, produce competitive products and now even deploy crews to build and finish the job.

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