CoBank: FCC’s RDOF Auction Results Raise Concerns About Execution, Financial Risk

Allocation of RDOF funds designed to bridge the digital divide draws scrutiny from Congressional leaders, industry groups.

  • CoBank

 

DENVER--The results of the first round of the FCC’s Rural Digital Opportunity Fund (RDOF) auction left many industry participants questioning how the commission decided to allocate the funds. Among the concerns raised was the FCC’s decision to award $885.5 million to SpaceX for its unproven Low Earth Orbiting (LEO) satellite business.

Additionally, some Wireless Internet Service Providers (WISPs) received a significant amount of government support that appears to be much larger than anything they have experience deploying. This raises questions about their ability to execute on that scale and to secure the necessary letters of credit.

A new report from CoBank’s Knowledge Exchange examines what it would take for the wireless providers who were awarded RDOF funds to meet their data speed claims, and the potential risks of falling short of their build plans.

“From a technology perspective, we can see a path to how these networks could be built,” said Jeff Johnston, lead communications economist, CoBank. “Fixed wireless equipment has evolved and new spectrum business models are enabling smaller operators to build carrier-grade networks at reduced costs. However, execution and financial risks could get in the way of deploying them.”

The RDOF is a 10-year, $20.4 billion broadband funding program that is repurposing legacy landline support from the Universal Services Fund. It is the FCC’s latest broadband incentive program and its largest effort to close the urban-rural digital divide.

RDOF is broken down into two phases. The first phase is exclusively for unserved areas while the second phase includes underserved markets. Phase one funds were awarded via a reverse auction whereby service providers bid on markets they wish to serve. Multiple sellers competed which enabled the FCC to maximize technological robustness for the best price.

The FCC is technology agnostic, but it weighed bids based on speeds and latency. Fixed wireless played a key role in the RDOF as bids that included fixed wireless represented almost half of the proceeds awarded to the 10 recipients. Historically, fixed wireless networks in rural America have largely consisted of Wi-Fi networks using unlicensed spectrum and have struggled to provide consistent throughput speeds.

On the financing front, RDOF winners are required to obtain a letter of credit (LOC) so that in the event they fail to meet their buildout requirements, the FCC has recourse to claw back whatever awards that fell short of the commitment. And while this seems straightforward, problems arise when the winning bidders do not have the financial strength to qualify for the necessary LOC.

The decision to award SpaceX with $885.5 million was even more shocking than the dollars allocated to some of the smaller fixed wireless operators. SpaceX is a private company owned by Elon Musk, the richest person in the world. SpaceX plans to offer high-speed satellite service to remote parts of the world by deploying thousands of LEO satellites, yet it remains an unproven business model for providing broadband connectivity to rural America.

“It’s important to recognize that RDOF success is defined by the FCC effectively distributing Universal Service Funds that maximize the impact on bridging the digital divide,” said Johnston. “Time will tell if they pulled it off.”

CoBank is not alone in its skepticism of the RDOF auction awards.

Earlier this month, several members of Congress asked the FCC closely scrutinize the long form submissions of winning bidders to ensure compliance with the program's requirements.

In the letter, the Congressional leaders said that “without proper due diligence today, we fear that we will not know whether funds were improperly spent for years to come.”

“As responsible stewards of USF funds, we ask that the FCC redouble its efforts to review the long-form applications that will now be submitted,” the lawmakers said in their joint letter. “We urge the FCC to validate that each provider in fact has the technical, financial, managerial, operational skills, capabilities, and resources to deliver the services that they have pledged for every American they plan to serve regardless of the technology they use. We also strongly encourage the FCC to make as public as possible the status of its review and consider opportunities for public input on the applications. Such transparency and accountability will be essential to ensure the success of this program and to minimize any opportunities for fraud or abuse.”

 

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