Tag Archives: RDOF

New Laws Moving Through Congress

The U.S. Senate Commerce, Science, and Transportation Committee recently approved 17 bipartisan bills, and a few of them impact the broadband industry. Since these have bipartisan support, it seems like they will have a decent chance of becoming law.

The first is S.98 – Rural Broadband Protection Act, sponsored by Senator Shelley Moore of West Virginia. This law requires the FCC to vet candidates before awarding any funding that comes from the Universal Service Fund, and that is the result of an application made to the FCC for funding.

The new law requires that the FCC to pre-qualify grant applicants to provide proof that they possess “the technical, financial, and operational capabilities, and has a reasonable business plan, to deploy the proposed network and deliver services with the relevant performance characteristics and requirements defined by the Commission and as pledged by the applicant.” Applicants also need to demonstrate that they have complied with the requirements for previous grant awards.

It’s an interesting law that is five years too late because this is what was needed before RDOF was awarded in 2020. That grant program ended up with some large winners who would not have made it through a pre-qualification process. The timing of this is interesting because I’ve heard no rumors of the FCC getting ready to find broadband infrastructure. There is still a decent chance that the FCC will pursue the 5G for Rural America fund this year, but that funding will go entirely to established cellular companies that will easily meet all of the needed requirements. The requirement that applicants must have complied with previous awards means that anybody that defaulted on RDOF or other grants need not bother applying for new federal funding.

This law is particularly interesting since the future of Universal Service Fund is under question and is in the hands of the Supreme Court. It seems odd to be tightening the rules for USF when the entire program might have to be revamped soon.

The second law that’s interesting is S.278 – Kids Off Social Media Act sponsored by Senator Brian Schatz of Hawaii. This law would prohibit social media platforms from allowing access to any kids under thirteen years old. The law also prohibits the use of personalized recommendation systems for kids. The interesting aspect of the law is that schools have to limit access to social media when using school computers.

A huge number of school systems provide laptops or tablets for students, and they will face a challenge in somehow making sure that kids don’t use those devices to reach social media. I’ve talked to some schools who already deal with this issue by limiting devices to only being able to connect to a school server and nowhere else. However, even those schools have a problem since their school servers let students research topics on the web to do homework. I don’t want to be insulting to school IT folks, but I suspect that the twelve-year-olds in any school system are collectively far more creative and smarter than whoever tries to limit them from finding a backdoor to reach the Internet. I hope this requirement doesn’t result in schools deciding to not issue computers.

My Wish List for the New FCC

A change of administration brings a change to the FCC as the majority swings from Democratic to Republican. I’ve always maintained a regulatory wish list, and the following are my hopes for what we’ll see out of the new FCC. These aren’t predictions – just my own list of hopes. I note that the current FCC didn’t grant me very many of the items on my wish list four years ago.

Keep Going with the 5G Fund – But Get the Maps Right First. We’ve spent a lot of energy in the last five years talking about the rural broadband gap. However, from my experience in working in rural America, there is a much bigger cellular coverage gap. Millions of folks live in places where they can’t make or receive cell calls at home. What’s probably worse is that cell coverage is dreadful for the many more people who drive through rural areas as part of their job. The FCC’s proposed 5G Fund for Rural America could address a lot of this problem, but the FCC cellular coverage maps are far worse than any older version of broadband maps. I fervently hope the FCC doesn’t repeat the blunders it made in the past by relying on bad maps – like RDOF. I hope the FCC takes some time and gets the maps right before it hands out billion to fund new cell towers. If they do this right, this FCC will go on record as one that made folks’ lives better.

Enforce RDOF Buildout Requirements. Speaking of RDOF, we’ve reached the point where a substantial portion of networks funded by RDOF should have already been constructed. I know numerous counties that haven’t seen any construction yet from RDOF. The FCC should take a hard look at actual RDOF completion at the end of this year and should yank the funding from any ISP that isn’t meeting its commitments. The FCC should make an effort to verify claims of network completion – unlike with CAF II when large telcos fully fabricated many of the updates they had supposedly made. It’s not hard to pick up the phone and talk to local officials who can verify if they’ve seen new RDOF broadband networks being constructed.

Push Congress to Get Spectrum Auction Authority. I know this is already on the FCC’s wish list. While they are at it, ask Congress to give the proceeds of any auctions to the FCC to further universal service goals. It would be nice to see the 5G Fund improvements be required to be completed over a few years instead of spreading the requirement over much of the decade as was done with RDOF.

Say No to Big ISPs Once in a While. The FCC has a mandate, like any regulatory agency, to balance the needs of the industry and the needs of the public. Republican-majority FCC’s have always leaned towards the benefits of the big ISPs. Surprise everybody and make a few rulings that curb the worst excesses of the big companies – you’ll be praised for it.

Put Some Teeth Back Into the Consumer Complaint Process. The FCC complaint process has always been the last resort for customers who are treated poorly by ISPs. The FCC historically stepped in and demanded that ISPs take care of the worst individual abuses. This was always handled quietly behind the scenes and didn’t create precedents or new rules for ISPs. However, the complaint process curbed some of the biggest excesses when the ISPs knew the FCC was watching.

Do Not Declare Job Done and that Rural Broadband has Been Fixed. Making those kinds of announcements never goes well.

My Predictions for 2025

Disruption of Federal Grants. It seems almost inevitable that Congress is going to pull back some or all future funding for the Digital Equity Grants that are part of the BEAD program. Some in Congress are already warning the NTIA not to award the current grants that are under review.

The BEAD grant program will change. Congress is likely to reverse some of the BEAD provisions that Senators have been complaining about, like the BEAD requirement that requires a low-rate option. However, BEAD is ultimately designed to be a state grant program, and a lot of States are going to fight hard against trying to direct funds away from fiber. With that said, it’s likely that a lot more BEAD funding will go to satellite than earlier estimates. I predict that the change of administration and a swap out of folks at NTIA is going to result in at least a six month delay in the grant process.

The FCC Will Stay the Course. The new FCC will not change the agency as much as you might expect from a change in administration. New Chairman Carr will act quickly to reverse the current FCC rulings on net neutrality and discrimination. But otherwise, there won’t be a lot of revisiting of other recent decisions. Assuming that Chairman Carr will tackle what he addressed in Project 2025, the FCC will spend a lot of energy trying to free up new 5G spectrum and investigating issues associated with Section 230 and content moderation.

Job Well Done? I predict at some point that the FCC and/or the NTIA will declare at some point this year that the rural broadband problem has largely been solved, relieving the federal government of any obligation to fund any more broadband infrastructure.

FWA Will have Another Strong Year. Some industry analysts have written off FWA cellular broadband as a temporary flash in the pan. I predict that T-Mobile, Verizon, and AT&T will continue to collectively add 900,000+ customers per quarter again this year. Any increased inflation in the economy will drive the FWA numbers even higher.

Universal Service Fund Will Change. I predict that the Supreme Court is going to rule that Congress erred when it gave the FCC the authority to operate the USF and to establish fees to fund it. That’s going to force Congress to scramble to revamp the popular program. Congress will be forced to fix the funding issues. I predict Congress will create a tax that will be charged against a larger base that includes large users of the Internet like Google, Microsoft, Meta, and others. All of the changes to USF will probably mean that the launch of the $9 billion 5G Fund for Rural America will be delayed or shelved for the year.

The Mad Scramble to Buy Fiber Businesses Will Continue. There is still a glut of investment capital looking for a place to land, and a lot of that money is going to be aimed at buying existing fiber-based ISPs.

RDOF Troubles. I don’t think we’re done with RDOF defaults. This might be further exacerbated by any movement by the administration to claw back RDOF funding that hasn’t resulted in infrastructure.

Cable Companies Will Tame Their Losses. While large cable companies will continue to collectively lose customers, the rate of losses will slow as the companies focus on holding their market share. The large cable companies collectively lost 265,000 customers in the third quarter of this year. However, Comcast and Charter both said they would have had small gains except for the one-time losses due to the end of ACP.

The Supreme Court Tackles the USF

The Supreme Court has agreed to review a decision from the 5th Circuit Court of Appeals, which ruled earlier this year that the Universal Service Fund (USF) is unconstitutional. Multiple lawsuits were filed by Consumers’ Research, a conservative non-profit advocacy organization. The Supreme Court accepted the case after there were conflicting rulings on the matter. Both the 6th Circuit and 11th Circuit recently ruled in similar cases that the USF is constitutional. The original lawsuits also alleged that the FCC acted unlawfully by delegating the operation of the USF to USAC.

The heart of the lawsuits relies on the nondelegation doctrine. This is a constitutional principle that believes that Congress can’t give its legislative authority to other parts of the government. In this specific case, the challenge is that Congress erred in delegating responsibility for the USF to the FCC, which is part of the executive branch of government. The nondelegation doctrine relies on Article I of the Constitution, which grants legislative authority to Congress, and argues that Congress can’t expand or delegate that responsibility. This hasn’t been used as a legal argument since the 1930s, in lawsuits filed to try to stop Franklin Roosevelt from creating New Deal agencies.

The Universal Service Fund was specifically created as part of the Telecommunications Act of 1996. This fund was originally created to support universal access to affordable telephone service, particularly in rural and low-income communities.

The function of the USF has been expanded over time to include four major programs: Connect America Fund, Lifeline, E-Rate and Rural Health Care. The Current USF is roughly $9 billion per year. USF is currently paying for the rest of the RDOF subsidy to build rural broadband infrastructure. The fund will also be covering the EACAM subsidy to fund faster infrastructure for rural telcos and cooperatives. The FCC recently announced it would be using USF funds to cover the $9 billion 5G Fund for Rural America.

Aside from this lawsuit, USF was already a hot topic in DC since it’s clear that the current way of funding USF is not sustainable. Currently, the USF is funded by a fee on interstate and international telecommunications services – a revenue stream that has been steadily shrinking. The new FCC Chairman Brandon Carr has been lobbying to spread the USF assessment base to include tech companies like Google and Facebook. Senator Ted Cruz, who will likely be the Chairman of the Senate Commerce Committee, has been suggesting that the USF should be funded with general tax revenues so that Congress can have a more direct say in how the money is spent.

The USF has also been in the news as a possible vehicle for funding a low-income subsidy for broadband. The USF currently supports the Lifeline program, which provides a $9.25 subsidy for qualifying households for telephone or broadband service. There was a lot of discussion during 2024 about trying to somehow move the now-dead ACP plan into the USF. This was the plan that provided a $30 monthly subsidy for broadband bills for qualifying households.

It’s not clear what might happen if the Supreme Court rules that the FCC doesn’t have the authority to operate the USF and to assess the fees that pay for it. Congress would have to intervene somehow to keep USF alive. Congress could do this by directly funding the effort. It could also create a specific tax to pay for the fund as a replacement for the FCC fees. If Congress is forced to jump through these hoops, it also seems likely that there will be an overall review of all parts and functions of the USF. This would include the role of USAC and the operating details of each of the four major USF funds.

Comparing State Broadband Performance

Ookla recently published a report that compares broadband connectivity and performance in each state. The report highlights the percentage of broadband customers who are receiving broadband speeds that meet the FCC’s definition of broadband of 100/20 Mbps.  This is also the speed threshold being used for the $42.5 billion BEAD grant program, which is supposed to provide grants to every part of the country that can’t achieve 100/20 Mbps. Ookla is the largest and most commonly used speed test in the country and receives millions of tests each day, so these comparisons are based on huge numbers of speed tests.

The Ookla results are interesting and give states a way to compare themselves to peer states. Connecticut, North Dakota, Maryland, Delaware, Rhode Island, and Tennessee had the highest percentage of speed tests that met the 100/20 Mbps threshold. downstream and 20 Mbps upstream. Each state had over 62% of speed tests faster than 100/20 Mbps – with Connecticut at 65.8% and Tennessee at 62.2%.

Ookla also got more granular in its analysis. For example, the analysis compared average speed tests result in each state for urban and rural broadband customers. There is a map in the report that industry folks are going to want to explore. This comparison produced some interesting results:

  • Connecticut, which has the overall highest percentage of homes receiving 100/20 Mbps had 72.4% of urban households and 62.3% of rural households receiving that speed. Number two overall fastest was North Dakota which had 69.7% urban and 64.6% rural.
  • The state with the biggest urban/rural digital divide was Washington, with 61.1% of urban households and only 28.7% or rural households receiving 100/20 Mbps.
  • South Carolina has a higher percentage of rural homes receiving fast speeds (56.4%) than urban homes (55.1%). The other states where urban and rural broadband performance is similar are North Dakota and Nevada.
  • Some of the most populous states had low rural broadband speeds including Illinois (38.7%), New York (39.4%), and California (40.1%).
  • The states with the lowest percentage of rural homes meeting 100/20 Mbps are also the least densely populated – Alaska (17.3%), Montana (20.8%), and Wyoming (25.3%).
  • The other states with percentage of rural broadband coverage under 40% include New Mexico (29.4%), Wisconsin (31.4%), Oregon (32.2%), Idaho (34.1%), Michigan (37.5%), and Maine (37.6%). These are the states that will require a heavy life from BEAD grants.
  • Some states are probably surprising to those outside of the industry. The best example is Mississippi, which historically had poor broadband coverage. However, the analysis shows urban coverage at 62.3% and rural at 56.6%. There is a lot of industry derision aimed at the RDOF program, but that program enabled rural electric coops in the state to build fiber.
  • Finally, a few states showed big improvement between the first two quarters and 2023 and the first two quarters in 2024. The states with the biggest improvements are New Mexico (50%), Arizona, (45%), Minnesota (38%), and Nevada (37%).

Anybody who looks closely at speed test results will quickly understand that any given speed test might not be accurate because of issues inside a home. A home might receive adequate broadband, but an old or underperforming WiFi router might lower the speed delivered to devices. WiFi is also subject to distance and interference issues, and computers located at the far end of a house might receive significantly slower speeds.

However, when taken in mass, speed tests provide an accurate comparison – if you assume that WiFi is a problem everywhere. This means is that every state actually has a higher percentage of homes that receive 100/20 Mbps than shown by the Ookla numbers. However, the relative differences between states, or between urban and rural parts of states are believable.

Starlink and Broadband Subsidies

The House Oversight Committee recently decided to investigate the FCC’s decision in 2022 to deny RDOF funding to Starlink. Anybody who has been reading this blog knows that I don’t take political positions, and the timing of this announcement clearly has political overtones since it was announced as Elon Musk took the stage at a campaign event with one of the presidential candidates. However, there were a few technical and policy issues raised recently about Starlink that means the issue is worth discussing.

I should make my own position on Starlink known upfront. I happen to live in a city, but if I was in a rural area with no good broadband option, I would have been one of the first people on the Starlink waiting list years ago. I think the broadband they bring into areas with no other options is awesome. Their products aimed at folks who are largely mobile are also unique and valuable.

The House announcement praised Starlink for helping the areas destroyed by Hurricane Helene. I live in western North Carolina, and Starlink got some good press here from its willingness to bring broadband to help areas without it. Starlink offered a free month of service, and I’m sure they gained new customers through that offer. But a new subscriber still had to pay for the receiver, and the logistics of getting a receiver delivered to rural areas post-hurricane were daunting – there are still many places that can’t be reached by vehicle. Also, unfortunately, the areas that need broadband the most are still without power.

But back to the issue of RDOF. The subsidy was awarded using a reverse auction, where the ISP willing to take the lowest amount of subsidy winning the funding. RDOF had two key requirements – the ability to deliver broadband of at least 100/20 Mbps, and the ability to serve every home and business inside a Census block that got the award.

The FCC finally decided to reject Starlink on the speed issue. When Starlink applied to enter the RDOF reverse auction, it said it could meet the 100/20 Mbps speed goal. And it looked for a while like it might. In the first quarter of 2021, Ookla says Starlink had an average U.S. speed of 66/16 Mbps but improved to 91/11 Mbps by the second quarter of 2022. However, since then, the speeds have slipped, and for the whole U.S. Ookla says speeds were 67/8 Mbps at the end of 2023 and a little slower in the first quarter of 2024.

Starlink has done a phenomenal job launching satellites and now has 6,371 functional satellites in orbit. But Starlink is like any ISP might be a victim of its own success – the slower speeds over time probably reflects that the number of customers has outpaced the number of satellites. The FCC was justified in rejecting the RDOF on the speed issue – the FCC 100/20 Mbps goal was not aspirational, but a real technical requirement.

The FCC could also have rejected Starlink on the coverage issue as well. One of the benefits of winning the RDOF subsidy is that winners were protected from any other ISPs receiving subsidies to build in the same Census blocks. For all practical purposes, RDOF winners in rural places were granted a monopoly – but for that award they were expected to be able to serve everybody.

In the early years, when it didn’t have a lot of satellites, Starlink put prospective customers on a wait list. The wait lists have disappeared, and Starlink is now willing to serve almost everybody in the U.S. – although there are a few places with geographical challenges where the company doesn’t claim the ability to serve.

The issue with coverage is that not everybody is a good candidate for Starlink. I live on a steep hill and am surrounded by other hills in all directions. I would guess that 35% to 45% of my view of the sky is blocked. My situation is not unusual in Appalachia, and much of the mountainous West and Southwest. If Starlink had only applied for RDOF in relatively flat areas, this would not have been an issue. However, Starlink won a lot of geography in RDOF in places like western North Carolina and the rest of Appalachia.

Starlink reception is also hindered by heavy foliage. The suggested solution for this is to put the receiver where this is not an issue. But there were places in the RDOF award areas that are fully covered by a forest canopy.

Interestingly, Starlink is back in the conversation in the BEAD grant process. Those awards are supposed to bring a broadband solution to every unserved and underserved location in the country. In every market, there are some locations where building other technologies is infeasible. NTIA prudently decided recently that Starlink is probably the only realistic solution for such places.

Unfortunately, some states say they don’t have enough money to reach everybody with fiber and/or wireless, and Starlink might get the final laugh by winning more subsidy from BEAD grants than it was denied for RDOF.

Concerns with the 5G Fund

The previous blog summarized the basics of the order for the new 5G Fund for Rural America that will provide $9 billion to improve rural cellular coverage. This blog looks at some concerns I identify with the order.

Are the Maps Accurate? The Rural Wireless Association (RWA), which represents smaller cellular companies, recently sent a letter to the FCC that claimed the FCC cellular maps are still highly inaccurate.It’s easy to check claimed cellular usage around you. Once you’ve loaded your address in the FCC map, look at the Mobile Broadband tab at the upper right. You will see the claimed cellular at your address or at any homes around you by clicking on locations.

I live in Western North Carolina, and rural cellular coverage around me is terrible – like is true for much of rural America. When I look at the rural cellular coverage around me on the FCC map it’s hard to find unserved areas. When I dig into the details of the map, I find a huge hodgepodge in rural areas where one carrier claims to serve each rural location – one cluster of homes might be deemed served due to T-Mobile, a nearby cluster deemed to be served by Dish, and another neighborhood claimed by AT&T. This mix of 35/3 Mbps 5G coverage in very rural areas seems unlikely.

An interesting complaint from RWA is that the FCC cellular reporting only looks at cellular coverage at homes. RWA argues that in rural areas, this is measuring the wrong thing – home cellular coverage is important, but cellular coverage should be measured along the roads where people drive every day. The current map shows no coverage data for areas between homes.

No Specific Public Map Challenge. The FCC is not pausing to give citizens and local governments a chance to challenge the cellular map. In fact, the FCC might only issue the final map of areas eligible for the funding 30 days before the auction begins.

This is a big oversight. If the RWA is right about poor maps, then the public should be given a chance to make sure that areas without adequate cellular coverage are included in the 5G Fund. It seems like the FCC thinks the public and local governments have had enough time to challenge the maps since the FCC started the BDC mapping process a few years ago.

The methodology need to challenge the maps is not easy. Speed tests to challenge can only be taken using the FCC speed test app. There must be a lot of tests in a given geographic area for tests to be considered. Speed tests must be taken either from a stationary place outside (like pulling over along the side of a road) or inside a home. Only the outdoor tests matter for the 5G Fund. To be done right, speed tests must be done using phones from all of the major carriers, meaning AT&T, T-Mobile, Verizon, Dish, and any local smaller carrier that offers decent coverage.

It’s basically impossible to challenge a carrier that has overstated coverage areas – you can’t conduct a speed test for a carrier that isn’t there. I note in rural North Carolina that there are a lot of places claimed as covered by Dish – but I’m highly dubious that there are many, if any, Dish subscribers in these areas who could take an FCC speed test to verify this. This is true for any carrier that is not really present – nobody is going to have a phone subscribed to a non-working service.

It’s unlikely that many county governments have undertaken a formal effort to organize the needed speed tests. And even if they did, that challenge has to have happened in the last year to be relevant. I work around the country, and in most of the rural counties I’ve worked in recent years, I’ve heard that cellular coverage is even worse than broadband coverage – and that’s saying something.

I don’t want to sound too critical of this plan because poor rural cellular coverage is a huge issue. This has been needed for a long time. But after having taken four years to get to this announcement, wouldn’t it make sense to take six more months to allow local governments to prove that cellular coverage is poor or that the FCC maps are inaccurate? The FCC does not want to repeat the dreadful problem it had with RDOF based on faulty maps. If the FCC rushes this through without the chance for a map challenge, it will feel like the agency is rushing to grab headlines. Doing this right is vital because communities that get missed by this upgrade are likely going to be stuck with poor cellular coverage for a decade or more.

When Will We See BEAD Construction?

I got feedback from attendees at a few recent industry conferences that there are a lot of folks who think there will be substantial BEAD spending in 2025. I don’t want to burst bubbles, but I just can’t see that happening.

Like every other part of the BEAD process, there are delays coming that are going to drive folks crazy. The rule that is going to cause the biggest delays is that no grants can be awarded in a State until a broadband office has lined up an ISP to reach every unserved and underserved passing.

Most States will need multiple rounds of grant applications to reach every passing with broadband, and most have built those rounds into their Volume 2 rules. One of the oddest things about the BEAD process is the 365-day shot clock where NTIA is pressuring state broadband offices to complete the grant award process within a year of approval of the Volume 2 rules. The entire BEAD process up until now has been extremely deliberate – it’s been clear since the beginning that the NTIA wanted to avoid the problems the FCC ran into with RDOF by awarding funds to unqualified ISPs.

After three years of little happening other than paperwork, the NTIA is suddenly pressuring grant offices to rush through ISP selection – the one step of the whole BEAD process where caution should be taken. The BEAD rules are complicated, and grant offices should be taking the time needed to make sure that applicants really meet the rules and can do what they claim. When I see states claiming they can handle the selection process in a few weeks, it’s clear there will be no due diligence undertaken. Going fast is good for ISPs because it means a grant office will be accepting every claim they make in a grant application without verification or questioning.

Even states that want to move quickly are going to run into problems when there are parts of a state or small pockets of homes that no ISP wants to serve. That’s going to trigger negotiations with grant winners to expand their footprints. If state broadband offices are feeling time pressure, this is where they are going to be tempted to hand a bunch of locations to Starlink, which is frankly a total copout unless the passings are extremely remote. If this process is done in a way to bring a real broadband solution to the small pockets, it’s going to take a while since ISPs are not going to readily accept locations that are hard to reach.

This process is very different from how State broadband grants have historically been handled. If a State historically found a good grant recipient in the first round, the State could proceed quickly to a grant award and get that project started. With BEAD, after a State has fully locked down an ISP for every passing, it must submit a report on the grant award process to the NTIA for approval. The NTIA says it hopes to do that review expeditiously, but it’s hard to think that writing that report and getting approval can happen much faster than two months. Who knows what happens if the NTIA disagrees with some of the grant awards or the award process?

Even when NTIA finally approves the whole grant package for a state, the next step is to finalize a contract with each ISP before a grant is officially awarded. I’ve seen this process for state grants stretch out for three months, and it can take longer. The contract is where the State will try to force an ISP to do things that were not included in its grant proposal. BEAD grant winners will have to fully comply with BEAD rules regardless of what they proposed in the grant application. This is also the stage of the process where ISPs must prove the final availability of funding and letters of credit.

I foresee many ISPs and States getting at loggerheads over some of the BEAD requirements, and it won’t be shocking if some ISPs walk away from BEAD during the negotiation process. States can obviously begin the negotiation process informally before the grant report is submitted to NTIA, but the negotiations won’t happen in earnest until it’s clear that the funds will be awarded. I don’t think anybody knows what happens if an ISP walks away from a grant late in the process.

For many grants, the next step is going to be an environmental study. Since all of the States are on a somewhat similar schedule, I expect there to be a bottleneck of the scientists and firms that do these studies. Typically, no construction work can begin until the study is complete and accepted by a State Broadband Office.

Unfortunately, ISPs are going to find out that BEAD is not the same as other grants they might have won. There will be more hoops to jump through, a more complicated grant contract, onerous reporting, and everything done under the eye of the NTIA.

To answer the question asked in the title of this blog, I see only a tiny fraction of BEAD construction happening in 2025. Perhaps a handful of states will find a quick path through these steps – but most will not.

Return Abandoned Grant Funds to States

Every once in a while there is legislation proposal that strikes me as a common sense idea. One recent such piece of legislation is the Broadband Fairness Act proposed by Senator Josh Hawley (R-MO).

The Act is simple and would return any defaulted grant funds administered by a federal agency back to the State where the award was originally intended. For example, there were numerous defaults for RDOF as Starry and many other ISPs withdrew from the fund and the awards to LCD Broadband and Starlink were cancelled by the FCC.

Under this proposed law, those defaulted funds would have gone directly to the States where the grant or subsidy was originally supposed to go. The Act encourages the States to use the money directly for the areas that were affected by the default.

The mechanics of making this work could get complicated. Consider RDOF that is paid out over ten years. I suppose this law would mean the State would get the funding over the remaining pay-out schedule. That should be enough funding for a State to justify creating an immediate grant since it knows it will eventually be reimbursed (just like is done by an ISP).

This would also apply to the many other grant and subsidy programs like ReConnect, CPF, SLFRF, EA-CAM, NTIA grants, and CAF-II.

This law would also apply to BEAD. There is no doubt in my mind that there will be BEAD defaults. There will be ISPs that agree to take grants in areas that turn out to be a lot more expensive to build than they expected. With a grant program of this size, there likely will also be ISPs that get into financial straits in the next few years and find themselves unable to complete the grant construction.

The beauty of this idea is that the money would go back to states fairly quickly to be used for the original purpose. This idea is almost what I would call a reverse claw-back. States would claw back federal funds to use for broadband if the first federal grant award fails for any reason.

Without something like this mechanism, areas with defaults simply get no broadband. That’s a scary thought because after BEAD runs its course, there might not be any more federal broadband grants for a while. Areas where grants default will be left behind with no broadband solution. If there is a big RDOF default next year, the FCC is not going to act to fill the created broadband gap.

In some ways, this feels like a little bit of a dig against the federal agencies that award grants. The FCC certainly made a mess of RDOF when only $6 billion out of $9 won in the auction is still active, and there are rumors of more coming defaults. But sometimes defaults just happen. Nobody expected Charter to walk away from a few RDOF areas recently – but they made a business decision that they could not afford to fulfill those obligations. This Act is a way to get defaulted money back into action much faster than waiting for federal agencies to launch a replacement grant program. It’s hard to not like the simplicity of the idea.

Because of the way that Congress functions today, this likely would need bipartisan co-sponsors to get any traction. It’s an idea that politicians in states that are going to see a lot of federal grant funding might want to consider.

FCC Actions on RDOF

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.