I have been asked my opinion several times recently about RDOF amnesty – letting RDOF winners walk away from their obligations without big penalties. There is no easy answer to the question.
It’s certainly a timely topic, since we are seeing ISPs walk away from RDOF. As I was writing this blog, Charter announced it was returning RDOF winnings in 125 Census block groups in Michigan, Missouri, and Wisconsin due to pole replacement issues. Altice defaulted on 18 Census blocks in Louisiana. Other RDOF winners are considering walking away from RDOF commitments.
There are several good arguments to be made that favor some kind of amnesty. Soon after the end of the RDOF auction the country experienced much higher inflation than has been seen for more than a decade. I’ve seen estimates across the industry that the cost to build a new broadband network increased 20% to 25% over the last few years. That certainly makes it significantly harder for an RDOF winner to build the markets it won in the auction.
The counterargument is that this same inflation also impacted other federal grants like ReConnect and various state broadband grants awarded across that same time period. When the FCC offered a 10-year RDOF subsidy, there was no guarantee that the economy would not change over that time frame. In fact, anybody winning a 10-year subsidy should expect at least one economic downturn during a ten-year cycle. The current spate of inflation is significant, but it’s not unprecedented, and there have been several worse periods of inflation during my career.
Another argument that can be made for amnesty is that RDOF was never enough funding to build rural networks. While RDOF wasn’t a grant program, many companies who took the funding treated is as such. Most ISPs, except perhaps the few giant ISPs, use the RDOF subsidy to secure funding to build the promised network. In doing so, RDOF winners treat the funding as if it is a grant.
Anybody who now complains that they didn’t get enough funding from RDOF doesn’t have a strong argument. Nobody required winners to bid below a price that they thought was sufficient. It’s clear that the reverse auction for RDOF got crazy due to bidders who had no business being in the auction – but anybody that got into a bidding war with one of the crazy bidders can’t complain that they didn’t achieve the RDOF award they were hoping for.
Perhaps the best reason to allow RDOF amnesty is that there is a good chance that anybody asking for amnesty might walk away. Or they might build a minimal network to try to say they satisfied the RDOF rules – but there is a good chance they will eventually walk away from RDOF, penalties or no penalties.
The immediate issue with RDOF amnesty is the impact it could have on BEAD grants. It’s completely unfair to State Broadband Offices to ask them to toss new locations into the BEAD process at this late date. Many States have already finished or are in the middle of the BEAD map challenge – and RDOF locations were not part of that process. States also didn’t look at the RDOF areas when defining high-cost plans.
Maybe even worse, ISPs haven’t considered building in any RDOF areas that are suddenly dumped into BEAD. The BEAD grants require careful deliberation by ISPs, and a significant amount of work is needed to understand the cost of building into grant areas. This isn’t something that ISPs are going to quickly tackle. This is even more so for areas like the ones that Charter is abandoning because of the cost of replacing poles – that would scare anybody else off from considering such areas.
I believe that at this late stage, the FCC needs to own the consequences of ISPs abandoning RDOF. I hope that the NTIA and states refuse to roll abandoned RDOF locations into BEAD grants at this late date. The FCC broke RDOF, and whether they allow amnesty or ISPS just walk away, the FCC needs to be the one to fix the problems caused by RDOF defaults.
We are almost 50% completed with our RDOF build and have no plans to default. However, for the FCC to allow Star Link to bid their wireless as if it were capable of competing against fiber, thereby allowing them to bid on every CBG in the US and and drive the opening percentage as low as they did, then block Star Link from receiving any money, shows true incompetence on the FCC’s part.
Maybe the NTIA and States can learn that serving rural customers is a no win business plan and give a lot more in the BEAD NOFOs
An important issue that is being lost in the all-or-nothing debate about “amnesty” is that it is often being discussed in the context of large RDOF surrenders such as Charter and Altice, but there are also RDOF winners who are diligently building out their networks but may not be able to viably serve a small number of their CBGs. It is appropriate that there should be a penalty for a partial early surrender of CBGs, but any such penalties should be reasonable and proportionate to the default. Unfortunately, the FCC’s current penalty structure is neither. This is because the penalty structure for RDOF was not created with partial early surrenders in mind. As a result, some entities that have come forward of their own accord to surrender a handful of CBGs are facing potential penalties in the million plus dollar range (this is despite the fact by comparison an entity that defaulted on hundreds of CBGs in the long-form process was only subject to penalties of $3,000 x the number of CBGs). It is simply not reasonable that an entity can default on hundreds of CBGs during the Long Form phase and only be subject to penalties in the hundreds of thousands of dollars but an entity that surrenders only a handful of CBGs in the early stages of the program deployment phase would be subject to millions of dollars in forfeitures.
The penalties for partial surrender early on in the build out process are unduly draconian and in no way proportional to the level of default harm caused by the partial surrender of CBGs. Moreover, it is likely that such penalties could impact the ability of coops and other smaller entities to meet their ongoing commitments for their remaining CBGs. Thus, excessive penalties for partial surrender of a small number of CBGs could undercut the very purpose of RDOF.