FCC Rejects Broader Relief For Growing List Of RDOF Defaulters

Thursday July 18, 2024

The Federal Communications Commission (FCC) says it won’t be providing broader relief for broadband operators that have defaulted on grant awards via the agency’s messy and controversial Rural Digital Opportunity Fund (RDOF) broadband subsidy program.

According to an FCC public notice, the FCC stated it found "no demonstrated need for broad relief" from provider penalties connected to either the RDOF or Connect America Fund II (CAF II) programs. It also shot down calls for a broader amnesty program for defaulters.

“Given the flexibility available under the existing default processes…we decline to provide a blanket amnesty,” the agency’s Wireline Competition Bureau said.

In a letter to the agency last February, a broad coalition of providers and consumer organizations suggested that either reduced penalties – or some sort of amnesty program – might speed up defaults, freeing areas for upcoming broadband infrastructure bill (Broadband Equity Access And Deployment, or BEAD) subsidies.

The group was quick to point out that areas where RDOF and CAF II money has been committed are considered “served” for purposes of BEAD deployments, potentially boxing out many desperate U.S. communities from billions in potential funding.

“Many of the RDOF and CAF II awardees who cannot or will not deploy their networks are located in states with the greatest connectivity needs, like Missouri and Mississippi,” the authors wrote. “The Commission should not permit these unserved rural communities to face this type of double whammy and be left behind once again.”

But in its statement, the FCC insisted that changes to its approach aren’t necessary because, it claims, its existing processes are working.

"RDOF and CAF Phase II support recipients have shown significant progress toward meeting deployment obligations, with only 4% of CAF Phase II carriers reporting not timely meeting buildout milestones, and with 71% of RDOF carriers reporting locations served a full year prior to the first deployment milestones required by the program," said the FCC.

While the FCC did not support changes to its approach, it did encourage defaulting providers (and regions impacted by RDOF defaults) to contact the agency immediately.

"Individual providers contemplating a default should contact the Bureau, as well as the relevant state or territory broadband offices and Tribal governments, as soon as possible to discuss their specific situation,” the FCC said.

A Sizeable Mess

As we’ve discussed at length, the RDOF program has been a mess since inception, with numerous broadband providers bidding on projects they either never intended to complete, couldn’t afford after inflationary and other costs often drove up the originally predicted cost of deployments, or ultimately lacked the technical competency to fulfill.

According to ILSR data, roughly 34 percent of census blocks that won RDOF funding (more than $3 billion in awards) are now in default. All told, 287,322 census blocks were defaulted on by more than 121 providers as of December 2023.

The Trump FCC was widely criticized for not doing a better job screening RDOF applicants and relying too heavily on winning bidders’ long-form applications submitted after the actual auction. The Biden FCC has since been chasing down defaulting bidders, retracting some subsidy promises, and issuing fines.

Companies like Starlink and LTD Broadband were particularly singled out for program applications that played fast and loose with FCC rules and factual reality, nabbing $2.5 billion in subsidies for broadband projects that were not properly vetted.

Starlink’s applications seemed to be aimed at gaming RDOF to receive nearly a billion dollars in order to deliver broadband to places like airport parking lots and traffic medians. The FCC wound up clawing back more than two-thirds of that award, noting that higher capacity and more affordable (for users) fiber deployments should take funding priority.

LTD Broadband (now Gigfire) defaulted on $1.3 billion in awards after it became clear the company violated program rules and was unable to convince the FCC that it could actually manage a build orders of magnitude larger than it had tackled previously. Other providers, like Starry, made massive bids then subsequently went bankrupt, defaulting on all of them.

In recent months a growing list of additional providers have been added to the list of defaults, including major providers like Altice and Sparklight. Charter, fined in 2022 by the agency for numerous defaults, recently defaulted on an additional 133 census block groups across three states.

When One Program Undermines Another

“The problem that is identified in the letter that tens of thousands, if not more, locations that will be ineligible for BEAD because an RDOF or CAF II awardee won’t build is a substantial and serious one,” Gigi Sohn, former FCC staffer and executive director of the American Association for Public Broadband (AAPB), told ILSR.

Alabama and Florida have waivers before the NTIA asking that their RDOF service areas be classified as “underserved” given the shifting reach of RDOF and potential conflicts (both temporal and financial) with BEAD. The waivers would allow BEAD funding to be leveraged in RDOF/CAF II areas where the awardees have not yet built. They’ve yet to be granted.

“While this really is more of a problem for NTIA to solve, we’re disappointed that the FCC couldn’t see fit to provide an extremely limited period of time in which those awardees that will not build their networks could return their awards without sustaining full penalties,” said Sohn.

In its statement, the FCC cited the concerns of groups like the NTCA – The Rural Broadband Association – which had worried that too generous relief could simply encourage further gaming of the system:

“While some comments offered various options for reduced default recovery, including using the lesser forfeiture structure available to all RDOF participants pre-authorization, most commenters rejected the concept of allowing defaults with no support recovery as thwarting the reverse auction system, encouraging bad actors, and undermining certainty in future support programs.”

“This was not a request for ‘broad amnesty,’ despite how the agency described it,” noted Sohn. “Regardless, that the FCC put out a 10 page order encouraging those awardees to work with them now shows that our letter has started an important conversation and has perhaps already resulted in a number of RDOF recipients returning their awards.”

With states slated to begin receiving more than $42.45 in federal infrastructure bill broadband subsidies starting in just a few months, it shouldn’t take long to see whether the FCC’s claim that nothing in the process needs changing was the right call.

Regardless, the FCC makes it clear that the sooner it cleans up the mess created by widespread defaults, the sooner regions can ensure they’re well positioned to receive what could be a generational outpouring of financial assistance.

"Earlier defaults can limit the support recovery and penalty costs to the carrier and also ensure that states and territories timely receive the necessary information for their BEAD planning,” the FCC said. “Earlier defaults also ensure that our sister federal agencies timely receive this information to target funding for their broadband deployment programs."

“Now it will be up to the states, to do what states like Arkansas has done - tell its RDOF and CAF II awardees that don’t intend to build to turn in their locations now so that all unserved and underserved areas can be eligible for BEAD funding,” Sohn said.

Header image of default risk tiles courtesy of PicPedia, ATTRIBUTION-SHAREALIKE 3.0 UNPORTED

Inline image of FCC entrance courtesy of Rob Pegoraro, ATTRIBUTION-NONCOMMERCIAL-SHAREALIKE 2.0 GENERIC