Congressmen worry RDOF funds will be squandered

A bi-partisan group of 158 congressmen sent a letter to the Federal Communications Commission (FCC), asking the agency to “thoroughly vet the winning bidders” of the first phase of the Rural Digital Opportunity Fund (RDOF) reverse auction “to ensure that they are capable of deploying and delivering the services they committed to providing.”

When the RDOF winners participated in the auction, their entries were based on short-form applications. But now, these winners must submit long-form applications. And the congressmen are asking the FCC to review the long-form applications to make sure each provider actually has the technical, financial and operational skills to deliver the services that they have pledged.

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The first phase of the RDOF auction garnered pledges to spend $9.2 billion. The congressmen are concerned that the RDOF funds, which come from Universal Service Fund (USF) monies, might be squandered. “Without proper due diligence today, we fear that we will not know whether funds were improperly spent for years to come,” stated the letter.

Before the congressmen sent their letter to the FCC, the analysts at New Street Research had already pointed out that if the history of FCC auctions is an indicator, the winners of the RDOF auction could default on their promises with few repercussions in the future.

“For every auction—and RDOF will not be different—the question for the FCC is how it will ensure that the parties live up to their commitments and then how will it address those cases where they don’t,” stated New Street Research analyst Blair Levin in a December 13 research note.

If the new FCC takes the congressmen’s concerns to heart, it will use the upcoming long-form application process to take a second look at the RDOF winners and potentially preclude some of them if it feels they don’t have a reasonable chance of fulfilling their promises to close the digital divide.

“In our view this opens the door to the new FCC to reject a number of applications from smaller players who won large sums,” stated Levin today. “We do not think this will affect the amounts won by Charter, the Rural Electric Coops or Starlink.

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Charter was among the biggest winners of the recent RDOF auction, garnering $1.22 billion on the promise it would provide its service to more than 1 million locations.

The biggest winner of the first phase of the auction was LTD Broadband, which was awarded $1.3 billion, pledging to provide fixed wireless access (FWA) service to 528,000 locations across 15 states.

The local news outlet Minn Post wrote in December, after the RDOF awards were announced, that some other broadband providers in Minnesota had doubts that LTD Broadband could meet its pledges “especially since the company has focused primarily on wireless internet technology while it now promises fiber-optic connections.”

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The New Street Research analysts noted that LTD Broadband has defaulted in a previous auction, although the amount and number of licenses in that case was very small.

New Street is speculating that if the FCC does a thorough review of the RDOF winners’ long-form applications, it may find that several of the fixed wireless access providers don’t have the wherewithal to deliver gigabit speeds to rural areas.

There are others who are skeptical about the participation of traditional wired providers.

For instance, in December 2020 Sen. Shelley Moore Capito (R-WV) sent a letter to the FCC noting concerns about the $370.9 million allocated to Frontier Communications in the RDOF auction.

“Frontier has a documented pattern of history demonstrating an inability to meet FCC deadlines for completion in the Connect America Phase II support in West Virginia,” wrote Capito. She said Frontier’s previous mismanagement of federal funds “raises significant questions about their ability to manage federal funds of this magnitude,” referring to RDOF.