In the recent October meeting, the FCC adopted a Notice of Proposed Rulemaking that would set tighter vetting rules for any ISP that applies for funding from the high-cost programs in the Universal Service Fund. This FCC action is the result of directions from Congress in May 2026 in the Rural Broadband Protection Act.

A lot of the impetus behind this FCC’s action is the huge number of defaults in the FCC’s Rural Digital Opportunity Fund (RDOF). That program did basically zero vetting and let ISPs bid in a reverse auction to bring broadband to rural Census blocks across the country.

One of the provisions of the new FCC rules is to increase the penalty for ISP defaults from $3,000 per location today to at least $9,000 per location in the future. Anyone that still plans to default on RDOF locations should do so before this NPRM is adopted.

Undoubtedly, good vetting would have stopped some of the companies that won in the RDOF auction. The biggest RDOF winner that didn’t get funded was LTD Broadband, which had won $1.32 billion from the RDOF auction to serve 528,000 locations. It’s hard to call that a default since the FCC booted LTD Broadband from the RDOF process after it concluded that the small company didn’t have the financial or technical wherewithal to meet its obligations. The FCC also booted Starlink from RDOF when it concluded that the company couldn’t meet the speed requirements of 100/20 Mbps.

But there were also a lot of companies that truly defaulted on the locations won in the reverse auction. A number of companies walked away soon after the auction when they only won some of the locations they had bid on, and what was left in their winnings didn’t create a sensible network. In my opinion, these defaults can be pinned on the FCC and its dumb idea to award RDOF by Census blocks instead of by sensible study areas.

But there were dozens of other ISPs who have walked away from some or all of RDOF winnings. This ranges from small ISPs to giant ISPs like Charter and Lumen. Better vetting might have eliminated some of these defaults, such as WISPs who won RDOF with a promise to build fiber. But I also lay most of these defaults at the feet of the FCC. The RDOF reverse auction ended in November 2020, but companies had far too long to meet their buildout requirements. There are still RDOF winners who have not completed the construction, and some of them are not required to do so until the end of 2027. The whole idea of giving companies that long of a time frame to build a broadband network was ridiculous from the start.

Maybe the ISPs were naïve in having business plans that underestimated the cost of inflation in the broadband industry. But to give credit to ISPs, inflation had not been much of an issue in the decade before the reverse auction. The rate of broadband inflation soared soon after the end of the auction and has remained higher than the overall economy’s inflation rate. Nobody who won RDOF could have foreseen the gigantic changes in the broadband industry. Huge amounts of federal grants were released as a result of the pandemic. Big ISPs like AT&T decided to build fiber to tens of millions of passings. Fiber valuations climbed, and dozens of venture-capital-backed ISPs entered the market.

All of the market changes pushed up the cost to build networks. Labor rates for experienced fiber technicians rose much faster than inflation. Supply chain shortages during and after the pandemic ran up the cost of many routine components, like anything that included resin. In recent years, the explosion in chip prices has meant skyrocketing costs for all electronics. Breakthroughs in wireless technologies brought faster speeds, but at much higher component costs. Pole attachments and rights-of-way cost more and took a lot longer than expected, especially when trying to cross federal lands. ISPs who had a solid business plan in 2020 found that they are better off financially by paying the penalties instead of building networks that costs too much.

We’re still not finished with RDOF defaults. For example, I know electric cooperatives that are thinking about walking away from their small remaining RDOF obligations that are outside of the cooperative footprint. I lay this blame on the FCC as well, since making broadband awards by Census block is far different than the way that ISPs would choose to expand. Networks follow roads, and ISPs design networks that way. Service areas by Census Block invariably include small pockets that are not connected to the rest of the Census block. There are going to be other defaults by RDOF winners who have delayed defaults to avoid the penalties. We just heard last week that Cox is walking away from its remaining RDOF obligations.

It’s hard to not agree that ISPs should be vetted better before receiving federal broadband funding. But when the basis of vetting ISPs better is largely aimed at the huge problems caused by RDOF defaults, perhaps the better answer is to get the FCC out of the business of funding network construction. They aren’t staffed for it, and I doubt they have the operational experience to properly vet ISPs if there ever were another big subsidy program. The funniest thing about this NPRM is that there are no more big blocks of unserved locations, just scattered small pockets all over the country. It’s highly unlikely that there will ever be another program like RDOF again, so this legislation and the resulting FCC action are largely meaningless.