The Rural Digital Opportunity Fund Auction: One Year Later

By Karl Bode and Ry Marcattilio-McCracken

 The FCC’s Rural Digital Opportunity Fund (RDOF) Reverse Auction was completed a little more than a year ago to much fanfare and spilled ink, and though we’ve seen irregular updates over the last twelve months, we thought it worth the time to round up what we know so far in an effort to see where we’re at and determine what is likely to come.

The RDOF was built to award up to $20.4 billion in grants over 10 years using competitive reverse auctions generally won by the lowest bidder. The money comes from the Universal Service Fund fees affixed to consumers’ monthly telecom bills. The previous FCC announced $9.2 billion in auction winners in December of 2020. 

To date the FCC has announced five rounds of Authorized funding released, six rounds of applicants whose bids they have decided are Ready-to-Authorize, and three rounds of Default bids. 

It’s clear that the final picture is still taking shape, but looking at things a year later leaves us feeling a little better than we were immediately after the auction closed. To date, it appears the FCC is closely scrutinizing many of the bidders that most worried industry veterans and broadband advocates, while releasing funds for projects that will bring future-proof connectivity to hundreds of thousands of homes over the next ten years.

Moving Slowly on Problematic Awards

The biggest news so far is that of the top ten winners, seven look to have received no funds at all (see table below or high-resolution version here). That’s $4.1 billion worth of bids for almost 1.9 million locations, and includes LTD Broadband, SpaceX’s Starlink, AMG Technologies (NextLink), Frontier, Resound Networks, Starry (Connect Everyone), and CenturyLink. This is a big deal.

Among the top 10 bidders who have received funds or will shortly, Windstream has received about two-thirds of its $523 million, Charter will shortly get most or all of its $1.3 billion, and the Rural Electric Cooperative Consortium has gotten two-thirds of its $1.1 billion. 

In addition, of the bidders who so far have received the most funds, three are electric cooperative consortiums (see table below or high-resolution here), including the Rural Electric Cooperative Consortium, the NRTC Phase I RDOF Consortium, and the RDOF USA Consortium. In fact, electric and telephone cooperatives have done well so far. Familiar faces include Paul Bunyan Communications in northern Minnesota ($16.3M), WK&T in the Kentucky/Tennessee/Illinois area ($2.9M), the New Hampshire Electric Cooperative ($6.5M), Coosa Valley Electric Cooperative ($2.1M), and Altamaha EMC ($8.7M).

Importantly, too, while 85 percent of all the winning bids during the RDOF auction were at the gigabit tier, nearly 100 percent of the funds handed out have been for gigabit service. So far, Low-Earth Orbit (LEO) ISP Starlink has gotten no funds for its “Above Baseline” bids for more than 640,000 locations for service at 100/20Mbps.

Charter Finally Clears the Hurdle, LTD Defaults Again

The newest batch of announcements on January 28th included Ready-to-Authorize bids as well as new Defaults. Charter Spectrum was the biggest recipient of this $1.3 billion announcement, with the company receiving all or nearly all of its $1.2 billion in winning bids.  

In looking at Defaults, it’s clear that LTD has some big problems on its hands. As of the middle of December, it had formally defaulted on more than $140 million of its bids (see table here, and map below or high-resolution version here). That includes 100 percent of the census blocks it won in Oklahoma and Kansas, 16 percent of its census blocks in Texas, and 10 percent of its census blocks in California and Iowa. Moreover, in the latest release on January 28th, the FCC announced that LTD defaulted on another 10,500 locations and $5.4 million. 

What will ultimately happen with LTD, we still don't know. In Iowa, the state Utilities Board has denied the ISP the Eligible Telecommunications Carrier (ETC) status the ISP needs to get RDOF funds and begin construction. The decision was made based on the provider’s history of errors and inability to follow state regulations. While some states grant ETC status themselves, others give that authority directly to the FCC. And it’s not clear whether the FCC can or will overrule states on this matter; in Iowa, at least, LTD failed to provide a convincing enough argument to the commission to get its way.

And it appears defaulting in census blocks offers little chance for recourse. Fierce Telecom reported back in August of 2021 that as far as the FCC was concerned, defaulted funds will “remain in the Universal Service Fund for later distribution through future funding mechanisms,” with no path described, at least for now, to getting those funds at all.

Rebuilding Trust

Whether the activity so far on the RDOF auction is a sign of larger attitudinal or structural changes to federal telecommunications policy at the FCC remains to be seen.

For decades U.S. policymakers have doled out billions of dollars in subsidies to fix an Internet access problem they haven’t bothered to accurately measure. While some of this money has gone toward productive projects, an inordinate amount was thrown in the laps of regional monopolies for network upgrades that were often half-delivered—if they were delivered at all.

Last year, the FCC found itself mired in scandal after research showed how the RDOF program was being exploited by some Internet service providers to nab money they didn’t deserve, for network deployments that didn’t make a whole lot of logical sense—and may not even be financially viable. 

Under first phase auction rules, grants were supposed to only be doled out to census blocks where consumers lacked access to even the FCC’s baseline definition of broadband: 25 Megabits per Second (Mbps) down and 3 Mbps up.

But reports by organizations like Free Press found the program was “riddled with errors, waste and insufficient oversight,” allowing some providers to game the system to glean subsidies they didn’t deserve, for deployment projects that didn’t make sense. 

“The RDOF auction’s design flaws led to granting subsidies in areas that are already served or could be served without subsidies, both in rural and urban areas,” the report found.

As we wrote about at the time, a befuddling bidding process not only led to providers that were awarded subsidies for fixed wireless or satellite technologies that were inferior to fiber, but a host of awards that went to bidders for a “worryingly low percentage of what it will actually cost to build those networks across the country.” 

The study took particular aim at Elon Musk’s Starlink satellite venture, noting that $111 million of the $885.51 million in subsidies awarded the ISP would be going to already-served urban areas (which Starlink will generally avoid due to capacity issues) or stretches of land with no infrastructure, such as highway traffic medians and airport parking lots. 

Additional reports showed providers like LTD winning grants for projects that weren’t the best use of RDOF funds—like an $8,000 award given the WISP to service the area directly outside of Apple’s $5 billion headquarters in Cupertino, California.

Bad Maps, Worse Outcomes

At the core of the scandal was the FCC’s historically inaccurate broadband maps and methodology, which for decades have declared an entire census block “served” with broadband if just one home in that census block has the potential for Internet access. Regional monopolies exploit these flaws to obfuscate market failure and hamstring new competitors

“Pervasive errors in broadband data will soon send hundreds of millions of dollars of Federal broadband subsidies to areas of the country least in need of support,” a May 2020 report by the Competitive Carriers Association stated.

Last July, after significant media criticism, the Rosenworcel FCC began sending letters to dozens of auction winners, urging them to justify errant claims or voluntarily give up a portion of their funding. An agency letter to Starlink indicated that the FCC would be challenging the company’s awards across 6,500 census blocks in 34 states.

The letter cited “significant concerns about wasteful spending, such as parking lots and international airports."

When contacted by ILSR, the FCC said it has applied significant, additional scrutiny to bidders’ long form applications, rejecting waiver requests made by ISPs that didn’t meet program rules, or likely overstated their ability to fully deliver on promised deployments. A December FCC announcement cited thirteen providers defaulting on bids across fourteen states.

“There’s been a lot of hard work done over the course of the last year to clean up the Rural Digital Opportunity Fund to be sure it supports deployment of new broadband infrastructure in areas that truly need it,” the FCC shared. “This has included weeding out questionable locations such as urban parking lots and traffic medians. We also put winning bidders on notice of their obligations and haven’t hesitated to kick out unqualified bidders. This clean-up work is ongoing, and we’ll have more updates in coming months.”

Derek Turner, the Free Press researcher who made headlines from his analysis of RDOF waste, said the FCC is making progress with ensuring the money is spent wisely, but still has work to do. 

“Given the constraints of existing policy and precedent as well as the reality of a 2-2 Commission, the Rosenworcel FCC did as good a job cleaning up the Pai FCC’s RDOF mess as they could reasonably be expected to,” he said.

Turner said that while the FCC has been measurably transparent, he has yet to conduct any quantitative analysis of the full scope of the reform efforts. It will take time and additional data to measure the success of the agency’s attempt to fix problems from the initial auction.

“There’s only so much the Commission could do without running afoul of the law or at least winding up in court,” Turner said. “There’s still a number of awards going to urban areas that are fully served, and only were eligible for subsidies because of bad deployment data.”

He added that while FCC and its Form 477 mapping program gets most of the criticism, a big part of the problem is incumbent ISPs providing inaccurate data in the first place. This includes in urban areas, where coverage is sometimes even over-reported. 

The scandals surrounding RDOF have raised additional concerns about the federal government's ability to effectively dole out the $42 billion in broadband spending lined up as part of the Infrastructure Investment and Jobs Act. While Congress has pushed the FCC to adopt numerous mapping reforms, most won’t arrive until after that money has begun to be awarded.

“We won’t know for years what the final extent of RDOF defaults will be,” Turner said. “The FCC’s pre-auction default policy, while stronger than the one from CAF-II, still lets winning bidders walk away from their deployment commitments years later, for a small fine. That encourages speculation, but of course to an unknown degree.”

We’ll continue to track new developments, and share them here.

Data work and maps thanks to Christine Parker, ILSR Data and Visualization Researcher

Photo by Rodion Kutsaev on Unsplash