The FCC made several announcements related to RDOF in recent weeks. In the most important announcement the FCC said it would not open a window for RDOF amnesty where it might assign lower penalties for companies wanting to default on their RDOF commitment. The decision was the result of a number of petitioners that asked the FCC to make it easier to walk away from RDOF. The FCC decision also covered anybody who was hoping to walk away from the CAF II auction commitments.
The FCC also warned RDOF recipients of the consequences of missing the build-out requirements. Most RDOF winners will be expected to have completed construction of 40% of their RDOF committed areas in each state by the end of this year. To be clear, the commitment for each RDOF winner is for the statewide RDOF commitment – not 40% of each county. The FCC warned RDOF winners that failure to meet those commitments could result in a reduction or end of RDOF subsidy payments, plus the FCC might tap the funds guaranteed by letters of credit to support the RDOF builds.
Counties across the country are getting nervous about ISPs meeting RDOF commitments. There are numerous counties where RDOF awards cover half or more of a County’s geography, and these counties understand that if RDOF winners never show up that they will be left in broadband limbo. The anxiety is increasing over time – I’ve worked with several counties that have never been contacted by the RDOF winners. These counties will are waiting to see the reported RDOF construction at the end of this year.
The FCC action squashed the hopes of a lot of those who wanted to walk away from RDOF. In February, a group of ISPs, trade associations, elected officials, school districts, and unions petitioned the FCC to allow ISPs to more easily walk away from RDOF so that BEAD might be able to absorb any defaults.
In the announcement, the FCC encouraged ISPs thinking of defaulting to do so now and to coordinate defaults with State Broadband Offices in the hope that perhaps BEAD funding might pick up some of the slack. The FCC subtly threatened that penalties would be larger for ISPs that wait to default. I think the FCC is engaged in wishful thinking. Unless a State believes it has more BEAD funding than it will need, a State would be crazy to absorb defaulted RDOF areas into the BEAD process at this late date. Doing so would end up shorting the funding to other BEAD applicants. States are under no obligation to accept RDOF areas, and at this late date, they might not be able to. The RDOF areas were not part of the many BEAD processes like the map challenges. ISPs thinking of asking for BEAD funding have done no engineering or financial analysis of RDOF areas that might be defaulted at the last minute.
The FCC made a second RDOF announcement where it officially acknowledged recent defaults by Charter, Co-Mo Connect, and Coleman County Telephone Cooperative. The FCC again voiced hope that other grant programs like BEAD would take on the defaulted areas. Charter said that some of the defaulted areas have extremely high costs or have pole owners that are not cooperating with construction – these don’t sound like areas another grant program should automatically absorb.
The FCC told the three ISPs that it would likely cease current RDOF payments for the defaulted areas, and at the end of the RDOF commitment would likely require a full reimbursement of RDOF funds for locations that were not provided with faster broadband. The FCC also told the carriers that they would have to petition the FCC separately to get out of ETC carrier-of-last-resort obligations and the requirement to provide voice service in the defaulted areas.
Back in June, the FCC said it was considering new rules to relax letter of credit and other financial rules related to federal grants. If the agency really wants to help the RDOF winners, it should speed up that process.
The bottom line of all of this is that the FCC has decided it is going to stand firm and expect carriers to fulfill RDOF obligations. The threat to grab the monies guaranteed by letters or credit takes penalties to a new level – although I’m mystified why the FCC isn’t asking for an immediate reimbursement of all RDOF monies already paid. If the FCC is serious about this, it should come to a head at the end of the year when the FCC gets confirmation of ISPs that are not building to their RDOF commitments. There are many rural governments that hope the FCC will take quick action against RDOF winners that have not yet started to build.
40% statewide versus county wide means an ISP can take money it got from 10 counties and invest it into 4 counties and meet the minimum right? As an ISP in a sparsely populated area we’ve seen this before. ISP’s we’ve never heard of prior pull grant money for our area and we never hear from them again. The assumption is they take the money and invest in their local market where they already had a network, likely in a much more populated and profitable area. Whatever penalties eventually land are likely less than the interest on a proper loan of that same size from a bank so it’s a win for the ISP.
I believe the worst offenders of this kind in the RDOF were ultimately denied the funding before they actually got it. So someone in a position of power was watching to some extent at least.