Charter scores big in Phase I of the FCC's RDOF auction for rural broadband builds

Charter was among the biggest winners for the Rural Digital Opportunity Fund (RDOF) reverse auction, which the Federal Communications Commission (FCC) announced on Monday.

Bidding under the name of CCO Holdings, Charter was awarded $1.22 billion in the auction that wrapped up early last week. Charter bagged 24 states, which was the most in the auction, and will provide its service to more than 1 million locations.

RDOF represents a $20 billion, 10-year opportunity for service providers and their vendor partners to build and connect faster broadband speeds in rural and unserved areas across the U.S. 

Speaking at Monday's UBS Global TMT Virtual Conference, Charter Chairman and CEO Tom Rutledge said he couldn't comment directly on Charter's winning RDOF bids because it's still in a quiet period. But Rutledge did say expanding Charter's footprint into rural areas was top of mind.

"We think it's good for us financially to extend broadband network and all of our network capabilities to as many people as possible," Rutledge said. "And we think working with the federal, local and state authorities to improve access to poles and rights of way, along with the proper subsidies, can get it done, and that we can have a bigger customer base and the communities that we serve can be expanded.

"We think it's smart for our company to do that. We think it can be done in an economically efficient way. By working with regulatory authorities, state and federal authorities, we can expand our network and have a bigger footprint."

Dell'Oro Group's Jeff Heynen, vice president, broadband access and home networking, echoed Rutledge's sentiments on Charter's broadband expansion into rural areas.

"Charter is really going to have an opportunity to expand its subscriber base well beyond what it could without the auction, despite the fact that it won fewer markets than most people were expecting," Heynen said.

Broadband has been very, very good for Charter. In its recent third quarter, Charter added 537,000 residential and small business internet customers versus 380,000 in the prior year quarter. In the past 12 months, Charter has added 2.3 million internet customers and 2 million overall customer relationships.

RELATED: Charter signs up 537,000 more broadband subscribers in Q3

With or without RDOF, Charter has long-planned to edge out its broadband services to more rural areas. On Monday's investor conference, Rutledge acknowledged that the rural expansion could lead to more competition against T-Mobile's 5G fixed wireless broadband service.

The biggest winner of the first phase of the auction was LTD Broadband, which pulled in $1.3 billion to provide service to 528,000 locations across 15 states. The first phase of the RDOF is targeted census blocks that are wholly unserved with fixed broadband at speeds of at least 25 Mbps down and 3 Mbps up.

The Rural Electric Cooperative Consortium chalked up $1.1 billion across 618,000 locations in 22 states. Following on the heels of the Rural Electric Cooperative Consortium, Space Exploration Technologies (Space X) was awarded $885 million to provide its Starlink broadband to 642,925 rural homes and businesses across 35 states. By contrast, ViaSat did not receive one of the RDOF Phase 1 awards.

"I think fixed wireless was a big winner, with LTD, Starry, and others winning sizable bids," Heynen said. "SpaceX was also a big winner, and it will be interesting to see if they will use the funds to lower the price of their service, in addition to expanding availability."

Starry was awarded close to $287,000 to provide its services across nine states. Windstream, Frontier Communications and Lumen also landed in the top-10 for Phase 1.

In addition to ViaSat, Verizon and Cox Communications weren't on the list of Phase 1 auction winners. The first phase was supposed to dole out $16 billion to census blocks where existing data showed there was no service available whatsoever.

The FCC said the bidders that won funding would deploy high-speed broadband to over 5.2 million unserved homes and businesses, which accounted for almost 99% of the locations available in the auction. Moreover, 99.7% of the locations will be receiving broadband with speeds of at least 100/20 Mbps, with an overwhelming majority (over 85%) getting gigabit-speed broadband. The FCC previously said it would favor ISPs that could build networks in rural areas that feature gigabit speeds.

In October, the FCC announced its list of 386 companies that qualified to bid in the first auction for the RDOF. On Monday, the FCC said 180 companies were awarded contracts.

The Phase I bidders ran the gamut of service providers across the telecommunications industry including cable operators, electric cooperatives, incumbent telephone companies, satellite companies, and fixed wireless providers.

The FCC said the structuring of the reverse auction yielded significant savings, as competitive bidding among over bidders yielded an allocation of $9.2 billion in support of the $16 billion set aside for Phase I. The $6.8 billion that wasn't awarded in Phase I will be rolled over into the future Phase II auction, which now has a budget of up to $11.2 billion for targeting partially-served areas as well as the remaining unserved areas that did not receive funding through Phase I.

"I think a lot of the companies that waited on the sidelines during Phase I will be a bit more interested in preparing for Phase II given that there will be $11 billion available," Heynen said.