In December, the FCC issued fines for two ISPs that the FCC says defaulted on RDOF obligations. RDOF was the FCC subsidy program where broadband subsidies were awarded by a reverse auction that ended in December 2020.

The fines are substantial and were set at $3,000 per passing for the defaults. I think the FCC is using these fines to issue a firm warning to any other  RDOF winners who might be considering default.

The first fine was to Etheric Communications for $732,000 for 244 locations. Etheric was one of the largest RDOF winners, having won $248.6 million to cover 64,463 locations. The FCC said that Etheric had failed to become designated as an Eligible Telecommunications Carrier (ETC) for the affected passings.

A much larger fine of $21.7 million was levied again GigFire (or LTD Broadband) for defaulting on 7,238 locations. Apparently, LTD Broadband has rebranded as GigFire, and the FCC levied the fine against both entities since it seemed uncertain of the relationship between LTD Broadband and GigFire.

LTD was largest RDOF auction winner, having won the auction for 528,088 passings and claiming $1.32 billion in RDOF subsidy. The FCC had rejected most of LTD’s claimed winnings. The FCC concluded that the company would not be able to deploy at the scope and scale needed to meet the RDOF obligations. The FCC levied the current fines against GigFire saying that the company failed to obtain ETC status for the effected passings, and because the FCC doesn’t believe the company didn’t meet the funding requirements in its most recent filings.

Default on RDOF are not new and there has been fines in the past from other defaults from companies like larger companies like Charter, Nextlink, and Breezeline. A number of small defaults happened soon after the end of the auction.

I’ve heard a lot of rumors about possible RDOF defaults over the last six months. I have no idea if any of these rumors are real. In many cases, the rumors seem to stem from counties who are getting nervous because they don’t see any construction started yet by RDOF winners. In many counties the RDOF awards cover a substantial part of a county, and counties fear having defaults after it’s too late to redirect these areas to the upcoming BEAD grants.

RDOF deployment rules require that a winner deploy 40% by the end of 3 years, 60 percent by the end of 4 years, 80% by the end of 5 years, and 100% by the end of 6 years. For most RDOF winners, the third year will be 2024. Unfortunately for nervous counties, the build-out requirements are measured on a statewide basis. An RDOF winner that won in multiple counties in a state could be meeting its statewide obligations without doing any construction in some counties.

It will be massively disruptive if there are any RDOF defaults after the BEAD grant process is underway, especially since most BEAD grants will likely be awarded this year. The FCC would still have the RDOF funding and could transfer the award to somebody else – assuming it could find somebody willing to tackle the areas for the level of funding that was set in 2020 before high inflation and higher interest rates. The FCC also has the ability to hold another RDOF auction, and it was anticipated there would be a second round of RDOF until BEAD grants seem to be covering the same areas that would be eligible for RDOF.