FCC faces pressure to pardon RDOF defaults

  • ISPs, schools, unions and local officials warned the FCC that RDOF defaults could cause rural communities to miss out on broadband expansion

  • The group asked the FCC for an amnesty period, during which companies that are unable to fulfill their contracts can relinquish them with reduced penalties

  • An amnesty period could allow previous RDOF locations to apply for funding through BEAD

The FCC is being asked to look the other way when it comes to defaults in the Rural Digital Opportunity Fund (RDOF).

ISPs, schools, unions and local officials sent a letter to FCC Chairwoman Jessica Rosenworcel warning that RDOF defaults could cause rural communities across the U.S. to miss out on broadband expansion despite significant investment from Congress, including the $42.5 billion Broadband Equity, Access and Deployment (BEAD) program.

The letter highlighted issues with the FCC’s RDOF and Connect America Fund II (CAF II) programs, which were designed to extend connectivity to rural areas. Yet, many companies awarded contracts under these programs are failing to fulfill their obligations, leaving those underserved communities at risk of being left behind in the digital divide.

The letter’s signees specifically requested that the FCC issue a brief amnesty period, during which companies that are unable to fulfill their contracts can relinquish them with reduced penalties.

RDOF and CAF II awardees have not even begun to build their networks for a variety of reasons, the letter said. The RDOF winners in the Emergency Petition, for example, have placed blame on “circumstances beyond their control, including skyrocketing costs, [which] have made building their networks impossible without further funding.” Other awardees of both programs, the letter alleged, “have simply sat on the money, preferring to make interest on their awards rather than building networks.”

BEAD ties in

The letter’s signees underscored the importance of the BEAD Program, which allocated funds last year to connect underserved areas as part of the Infrastructure Investment and Jobs Act (IIJA). As of now, rules established by the National Telecommunications and Information Administration (NTIA) say that areas promised broadband through RDOF or CAF II are disqualified from BEAD funding.

New Street Research’s Blair Levin said it remains unclear the exact number of locations implicated in RDOF defaults that would not be eligible for BEAD funding, and therefore not get connected.

“While the number as a percentage of U.S. homes is low, the prospect of continuing to be disconnected is a big problem for those living in such communities,” Levin told Fierce Telecom this week.

Most states will begin their BEAD mapping challenge process in the first half of this year, and later this year will start choosing subgrantees. Should the Commission grant the amnesty period, states will be able to include communities that are currently unserved or underserved but are not included on their broadband maps because of unfulfilled RDOF and CAF II commitments.

The letter said that lowering the penalties for defaults will “incentivize awardees to relinquish their areas sooner rather than later, making the areas eligible for BEAD funding,” but also suggested to further incentivize relinquishment, the Commission “could consider increasing the penalties for awardees who default after the amnesty period is over.”

Too many cooks in the government kitchen

One major reason for the defaults is that different government agencies pushing for broadband expansion haven’t really teamed up effectively, according to CCG Consulting President Doug Dawson and Levin from New Street Research.

This is no small wonder considering the number of agencies involved. In addition to the FCC’s RDOF, CAF and ACAM programs, the NTIA is overseeing BEAD and the U.S. Department of Agriculture (USDA) is administering ReConnect grants.

Two years ago, the Biden administration directed the FCC, the NTIA and the USDA to coordinate federal funding for broadband. But Dawson said, “It’s pretty obvious that there is no coordination happening.”

In a blog last month, he pointed to other instances of shoddy coordination, including the FCC releasing its A-CAM order only three weeks after the NTIA announced the BEAD allocations last year. The FCC's timing for the announcement “made no sense,” he wrote, because removing A-CAM locations from the unserved areas likely would have changed BEAD funding distribution.

Similarly, the USDA recently announced a new round of ReConnect grants just as states are gearing up to dish out BEAD money. Dawson said having both grant programs running at the same time is “going to cause all sorts of problems for both ISPs and State Broadband Offices.”

“It’s hard to imagine how State Broadband Offices can handle the concurrent grant program,” he added.

As for RDOF, a number of awardees have already defaulted and may have paid stiff penalties for doing so.

“History will judge the 2020 RDOF auction to be the worst FCC action ever taken in reference to rural deployment,” said Levin.

A history of defaults and mistakes

Speaking of history, the defaults are not new. In fact, by August 2021, RDOF winners had already defaulted on $78M in bids. In 2022, the FCC announced it would be fining an additional 73 auction participants amounting to $4.3 million.

In May of last year, Charter Communications, Altice USA and Shentel were among the nearly two dozen companies the FCC targeted with a total of $8.8 million in fines. And most recently, more forfeitures totaling over $22 million were proposed against Etheric Communications and GigFire in December.

While the Commission couldn’t have reasonably known that the IIJA bill would pass within a year and provide funding to deploy to unserved and underserved communities through BEAD, Levin said the failure to “do minimal due diligence as well as other mistakes led to numerous problems.”

As to why the FCC is not doing everything possible to make communities eligible for BEAD, Levin said the logic is “murky.” In their readying for BEAD deployment, states and the NTIA are doing their best to avoid the mistakes of RDOF, but he noted that no major investment program can avoid some mistakes and defaults.

In another blog this month, Dawson said choosing grant winners is the most important process within a grant program like BEAD. However, instead of being “careful and deliberative,” states are expected to rush through that process and award grants as soon as possible this year — which can lead to mistakes.

It’s “almost guaranteed” that State Broadband Offices are going to make big mistakes when rushing through grant applications from ISPs, Dawson added. “Anybody who has ever reviewed grant applications knows that every application paints a picture of an ISP that walks on water, and it’s not easy for inexperienced reviewers to distinguish good proposals from shoddy ones. A fast award process means less time for due diligence.”

Editor's note 3/6/24 4:40 p.m. ET: After this article was first published the FCC announced it is seeking public comment on the proposed amnesty period for RDOF defaults. The first round of comments are due March 26, 2024.