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“This Isn’t a Game:” The RDOF Auction, Unforced Errors, and Getting Infrastructure Funding Right - Episode 448 of the Community Broadband Bits Podcast
The conclusion of the RDOF auction was met with a good deal of drama and uncertainty, leaving many of us working after the fact to understand the policy and practical impacts of its outcomes.
This week on the podcast Christopher talks with Jonathan Chambers, a partner at Conexon, a network solutions provider for electric cooperatives around the United States who helped organize a consortium of nearly 100 cooperatives to successfully bid for more than $1 billion in funding from the recent Rural Digital Opportunity Fund Auction administered by the FCC.
Christopher and Jonathan unpack the design and implementation of RDOF not only in the context of the current broadband landscape, but the history of FCC auctions and federal infrastructure subsidy policy. They discuss how the funding will support upcoming projects which will bring fiber networks — many of them owned and operated by electric cooperatives — to hundreds of thousands of Americans over the next decade.
But they also talk about the multitude of winning bids that went for a worryingly low percentage of what it will actually cost to build those networks across the country. Jonathan and Christopher discuss why we saw that happen, but also what kind of guardrails we don’t but should have in place to make sure that public money for broadband infrastructure doesn’t go to waste and, equally importantly, so that households in those areas don’t go another decade without a quality Internet connection.
This show is 53 minutes long and can be played on this page or via Apple Podcasts or the tool of your choice using this feed.
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Listen to other episodes here or view all episodes in our index. See other podcasts from the Institute for Local Self-Reliance here.
Thanks to Arne Huseby for the music. The song is Warm Duck Shuffle and is licensed under a Creative Commons Attribution (3.0) license.
Jonathan Chambers: If we're going to invest the public's money in networks, these are networks that should last decades: thirty, forty, fifty years.
Ry Marcattilio-McCracken: Welcome to Episode 448, of the Community Broadband Bits Podcast. This is Ry Marcattilio-McCracken here at the Institute for Local Self-Reliance. This week on the podcast, Christopher talks with Jon Chambers, a partner at Conexon - a network solutions provider for electric cooperatives around the United States, who helped successfully organize a constortium of more than 100 cooperatives to successfuly bid for more than 1 billion dollars in funding from the recent Rural Digital Opportunity Fund auction administered by the FCC. The conclusion of the RDOF auction was met with a good deal of drama and uncertainty, leaving many of us working after the fact to understand the policy and practical impacts of its outcomes. Christopher and Jonathan unpack the design and implementation of RDOF not only in the context of the current broadband landscape, but the history of FCC auctions and federal infrastructure subsidy policy. They discuss how the funding will support upcoming projects which will bring fiber networks — many of them owned and operated by electric cooperatives — to hundreds of thousands of Americans over the next decade. But they also talk about the multitude of winning bids that went for a worryingly low percentage of what it will actually cost to build those networks across the country. Jonathan and Christopher discuss why we saw that happen, but also what kind of guardrails we don’t but should have in place to make sure that public money for broadband infrastructure doesn’t go to waste and, equally importantly, so that households in those areas don’t go another decade without a quality Internet connection. Now here's Christopher talking with Jon.
Christopher Mitchell: Welcome to another episode of the Community Broadband Bits podcast. I'm Christopher Mitchell at the Institute for Local Self-Reliance in St. Paul, Minnesota. It's still really freaking cold. I'm talking to John Chambers, a partner of Conexon, someone who's on the show many times. Welcome back.
Jonathan Chambers: Thanks, Christopher. Great to be with you as always.
Christopher Mitchell: So you and I tend to spend a lot of our time talking about FCC programs and something that you have had a lot of experience with. Talk a lot about rural broadband, where you work with electric cooperatives as your clients, bringing fiber optic networks throughout rural America. Anything else that you want to share for someone who might be tuning in for the first time to get a sense of you?
Jonathan Chambers: Thanks for that introduction. I think there's been a real change in the past year or so that's a change in the way people think about broadband. And I'm reminded what a mentor of mine taught me years and years ago, which is it's less important to be right about something than it is to be right about something at the right time. And this goes back to our discussions for years and years. I have believed my business partner, Randy Klindt, has believed that is not just a nice to have, but that it is essential to live and work in the world today, to have access to high-quality Internet services, which to us means fiber to your home, fiber to your business. And that, in large part, I think is what's changed in the past year. We have been singing that song for a long time. We work with electric cooperatives, as you mentioned, because we found it's the most efficient way to build fiber networks in rural areas, which are areas where the most need is in the country. And the change pre- and post-COVID is not, in our view, a change as to the necessity, but a change in the realization of the country as a whole now that the future should be in building these high-quality networks.
Jonathan Chambers: And that's not just what we've been engaged in, building fiber networks in rural areas to every rural home in business, but it's something that seems to have taken on an acceleration now, an acceleration both in terms of people's funding. People meaning the cooperatives that we work with, communities, local governments, county governments, state governments, the federal government, finally. And in the pace of construction, it's no longer viewed as, "We'll get to it one of these days." Everybody realizes that the day they should have had these services was last March or last February when the pandemic first became apparent to all of us.
Christopher Mitchell: So we're going to talk about RDOF and before we get there or before we really get stuck on it, I guess I should say, let's start gently into it by talking about your experience with your electric co-ops. You put a consortium together, you're one of the big winners. And what I really want to get to is where you're building. And, frankly, I feel like there's this biblical the-first-shall-be-last-and-the-last-shall-be-first phenomenon that you've been seeing emerging from Arkansas, Mississippi, Missouri. So I want to head in that direction. But what did RDOF bring for you and your clients?
Jonathan Chambers: So we had been working on RDOF for much of the past decade. I know it sounded like it was a new program. When it was announced by the FCC, it was a rebranding of a program that had existed. And the way we build networks, we had found that you could build a network without needing government subsidies. In areas where the population density got down to, say, 10 homes per mile, 8 homes per mile, we'd been able to build even densities less than that. RDOF, where the funding was based on a population density cost model. That is, it's the Connect America cost model, which is the basis for all of the RDOF funding, the Connect America funding, the ACA funding, that's really a very sophisticated population density model and projects that you would need subsidy down to about 15 to 20 items per mile. So RDOF was important to us and to the electric co-ops, to rural America in general, but to the way we looked at things, because the average density of an electric co-op is right in that six to eight homes per mile. And so that means about half of the co-ops could build networks without subsidy, but those tended to be the more densely populated areas. And the more densely populated areas tend to have some level of cable service already, that is broadband service.
Jonathan Chambers: It's the ones without population, which don't have cable service, which then are not dense enough to sustain themselves without some subsidy. Those are the ones where RDOF was keenly important, as are some of the other public programs. So we did form a bidding consortium made up solely of electric co-ops, as we had done before. We, Conexon, as the organizer, was also a participant in the auction, as we bid in order to get funding to build networks and operate those networks ourselves. So we did a mix of bidding. We bid on behalf of co-ops. We bid where we had agreements with co-ops to bid in their territory, where we would become the operator. And we bid in some areas because we thought that we could make an economic case for building and operating networks. In total, our consortium won $1.1 billion, covering nearly a couple of dozen states, 600 plus 1,000 locations. Although that's not really the way we build.
Jonathan Chambers: If you compare, just to give you a sense of it. Now RDOF funds, in our experience, about a third of the locations in a rural area for various reasons, because the area was considered to be served, because the area was not part of RDOF, because the underlying telephone company was not a price-cap carrier telephone company, because the area might have had in parts of the territory some cable service or somebody claiming service, because the cost model might not have calculated an amount of money. For various reasons. If you took an electric co-op, let's say with 30,000 members, 30,000 homes and businesses, we found that RDOF would usually cover about 10,000 of those homes and businesses, and the other 20,000, and the way we do things, we believe need service just as much as the 10,000 in the RDOF area. So when we plan for design and construct networks, we do that to 100% of the members of a co-op. So our RDOF is important.
Jonathan Chambers: But just like every single other federal program I'm familiar with, state program, you have to apply for money when you can and then apply for the next one, and then the next one, and the next one, because it takes multiple programs sometimes to put together the sufficient funding to build out a network in a rural area. I'll make one comment about how that worked for us. We had nearly 100 co-ops in our consortium and we were bidding on behalf of some others. So over 100 co-op territories where we were bidding, every one of the co-ops in our consortium who was already in the business, they got funding in RDOF. We had a large number of co-ops that dropped out during the bidding, because the bidding got very aggressive and it dropped below a level where some of the bidders felt comfortable. Everyone that dropped out, at least in our bidding consortium, had not yet started any network, had not yet provided services. The reason is the others had already gotten going. The others, many of them had gotten Connect America funds or state funds or county funds already.
Jonathan Chambers: So it was the case that if you were already on your way, had already started something, had already gotten access to some other funds, the amount of RDOF you got was sufficient. But if you were dependent entirely on RDOF to make your business case, I don't think it worked anywhere. RDOF had to be viewed in the context of there were going to be other programs in the future if you hadn't gotten programs in the past. And you couldn't rely solely on RDOF being the difference for you, because, again, the bidding got very aggressive. I think it gets so aggressive that I expect that the number of defaults in RDOF will lead to an awful lot of disappointment.
Christopher Mitchell: And we're going to talk about that. One of the things that I remembered as you were discussing that was that a year ago you developed a very interesting plan that would have sped gigabit fiber development if the FCC had acted more rapidly to say that, among all these areas in the RDOF auction, if there was one potential bidder in an area that was willing to do gigabit fiber, that they would have just gotten the reserve price, and they would be able to move forward immediately and start building. You had estimates for how many areas you thought that would cover. And, at this point, I feel like for anyone who hasn't been watching, I guess I've just been assuming people aren't aware, what we're going to talk about is that there's a bunch of people that did using technologies, such as gigabit wireless, that are quite speculative. There's a lot of areas in which there's a very low amount of subsidy that was actually awarded and it does not appear to be economical to build. And there's some companies that have enormous tasks in front of them that we don't have a sense of whether they have the ability to actually make good on. So those are three major problems we'll cover. But just for people who are aware then, John, do you have any sense of what we missed out by not using that approach that you had had.
Christopher Mitchell: How many premises? [inaudible 00:14:01], but hundreds of thousands of premises who now have a much riskier future than they would have if the FCC had gone with this approach that would have ensured gigabit fiber in a whole lot of areas.
Jonathan Chambers: Yeah, I think we submitted a letter to the FCC that if you add it up, it was all the signers to the letter were all CEOs of electric co-ops. That said, if the FCC followed that approach... Congress followed the approach because there was legislation passed by the House of Representatives that never became law because the second stimulus bill never became law. I think it was several million homes and businesses passed. These were all co-ops. Companies that were committing to accelerate the construction to finish these projects in a period of several years. The FCC-
Christopher Mitchell: Rather than seven, effectively.
Jonathan Chambers: Yeah, rather than the between six and eight, depending on the population growth in an area, depending on the 2020 census, it's the way the FCC program works. Yeah. I've come to think that there's a... and this is true for the programs to come. I'm going to tell you the best run state or federal program I've seen in recent years and I expect it will surprise a lot of people. It was the program run by the state of Mississippi, using CARES Act funding last year.
Christopher Mitchell: Someone should have been a podcast on that. Hey, wait, you and I did, along with Coastal Electric.
Jonathan Chambers: Yeah. Right.
Christopher Mitchell: People should go back and listen to that.
Jonathan Chambers: Here's what made it so good. They had a tight timeline on what had to be built and when, because the CARES Act required that funds be used by December 31st. Now, as it turns out, Congress extended that timeframe, but they only extended that timeframe on December 30th. So we believed we had to build everything by December 31. What was interesting about that tight timeframe... and we were awarded money in August, so we really [crosstalk 00:16:22]-
Christopher Mitchell: Not just money. $50 million.
Jonathan Chambers: So we were working on behalf of about half of the co-ops that won money. 15 co-ops won a total of $74 million. For the 35 or so million that the co-ops we worked for won, for those seven projects where we were working, we built a couple 1,000 miles of fiber in a few months. Some of those projects were brand new, starting in August and September. We started constructing fiber in some of the areas, coast being one of them in the southern part of the state. We started constructing in September and turned on service to their members in October. By making it really tight timeframe, you couldn't apply for larger areas than you were going to be able to build. That if, by applying, and we applied in July and were notified in August, by applying knowing you'd only have a few months to build, you only applied for that which you knew you could build in a few months. Now it was really aggressive. At one point last fall, I think we were building around 50 miles of fiber plant a day, a day, because we had to to meet the timetables. And people got service really quickly.
Jonathan Chambers: Those projects also became part of, everyone that won that funding also bid in the RDOF. And so those are all ongoing. It wasn't that just we built until December 31st and stopped. It's that each of the cooperatives identified a specific area that they believed they could build in that period of time. That got them going. And now they're going on to the next one. The problem sometimes with these programs, and it's a problem with RDOF, is that the first time the FCC will know whether somebody is succeeding in their construction is three years or longer three, maybe four years from now, from the time when the FCC is reviewing their application. That's a long time to wait to find that out. The way that Mississippi program worked, it was a 50/50 match. So you identified a program. You said something like, "All right, I'm going to build $6 million or $8 million of plant." You got reimbursed for what you built and that was all done over the course of several months. Now the reconciling of receipts and the audit process will all go on for a few months from now. But by limiting how much money would be spent and how quickly you had to build, it was a lot better control. Not by design necessarily, but by the necessity of meeting the CARES Act requirement.
Jonathan Chambers: That means nobody's wondering three years from now, "Hey, did that money get used properly? Did somebody make gigabit service available in this particular census block? Did this number of locations in a particular census block that some other FCC commission awarded?" No, it's done. And I have one piece of advice to folks that are designing funding programs right now, state level, federal level, it's to do it in a series of don't try to award all the money at once and don't try to award money for years at a time. Make sure that somebody who's going to get the money is going to build in, say, six months. Don't even give them a year. In other words say, "Only apply for the money you can use in the next six months. We'll see if you used it. We'll see by what you build. And maybe you get money for the next six months." Keep these rolling programs going, so people who are using the funding that get to use it. Don't try to make the one decision like, "Oh, I'm going to make a decision about $25 million to award it to somebody, like the reconnect program, and I'm going to see what they build over some period of years." Do it that way, you subject to the program to a lot more complication and a lot more chances for a mistake and default and all the rest of it.
Jonathan Chambers: If people can't build quickly, they shouldn't be getting the money. I know the notion back in the Recovery Act period in 2009 to 2011 was this much maligned concept of shovel-ready. There's nothing wrong with the idea of a shovel-ready project. But a shovel-ready project that's sort of the proof of the pudding is in the tasting, that the shovel-ready project isn't you show up and you say, "I'm ready." The proof is, "All right, three months from now, what did you build?"
Christopher Mitchell: Right. Let me-
Jonathan Chambers: Yeah, go ahead.
Christopher Mitchell: Let me pull this back, because I do want to cover this issue of Mississippi and Arkansas are two of the states that have some of the worst broadband connectivity in the nation. Missouri is not so well off either. Missouri is making improvements. You've discussed some of what you've seen in Mississippi, but how bold can we be in terms of what we're going to see from Arkansas and Mississippi in coming years, because of the sheer amount of electric co-ops that are aggressively moving forward?
Jonathan Chambers: Yeah, I think a fair accounting of Mississippi today is that Mississippi leads the nation in broadband. I don't know what metrics other people are using. I thought I'll use one metric. How much is being invested in real broadband plant, fiber plant, per capita? I think Mississippi is far, leads any state. I don't even think there's a close second. Arkansas might be a close second. Because what the cooperatives are building both in Mississippi and Arkansas, and the majority of co-ops in both states are engaged in these activities. What they're building our fiber networks to every single one of their members. Gigabit service at affordable price. 100 megabit service at affordable price. Networks capable of delivering more than gigabit if they want today. 2 gigabit, 5 gigabit, 10 gigabit per second. The reason to build networks capable of those kinds of speeds, even if you don't have an application today, is these should be long-term network investments. If we're going to invest the public's money, it should be in something that's going to last the next 30, 40, 50 years.
Christopher Mitchell: Do you might think that again, "Something that'll last..." Just if in your tone, if you don't mind, just try to repeat yourself.
Jonathan Chambers: Yeah. Yeah. Yeah. [inaudible 00:23:38] that. If we're going to invest the public's money in networks, these should be networks that are going to last decades. 30, 40, 50 years. The investment in the electric co-ops and the electric networks in the '30s and '40s, well, those have lasted for 80 years. We shouldn't invest in any technology that doesn't have a 30-, 40-year life. And that is one of the major criticisms I've had about some of the government funding, a lot of the government funding. They have gone for short-term technologies. Short-sighted...
Christopher Mitchell: Well, yeah, just say it. Michael Riley was proud of this, right? Former FCC Commissioner, he would say, "Well, before we want to build everyone a Corvette, we want to get everyone in kind of a beater Chevy." And the thing that people missed is that he says, "We want to build everyone a Chevy. We want to throw it away. We want to start over and build a brand-new Corvette for everyone after that maybe." And that's super wasteful.
Jonathan Chambers: That's exactly the point. So Michael, I worked with him a long time ago. He's not at the Commission any longer, because he made a honest statement.
Christopher Mitchell: Yes. Very much. Let's honor his backbone in a time in which few people have it.
Jonathan Chambers: Michael had a point of view. And while I disagree, his point of view was based in a view that we shouldn't use public funds for, the way he put it, Maseratis or for high speed. Shouldn't use public funds for gigabit. My view was always, "But you're not funding gigabit. You're funding networks. The money is going to networks." Networks that are capable of lasting for decades. If it's gigabit capable today, it will be capable of delivering the services necessary 10 years and 20 years and 30 years from now, because those networks, GPON networks, other networks where you've built fiber to the home, those have the capability of continuing to evolve and meet the needs without additional government funding. Whereas the way the FCC pursued programs, from the very first Connect America fund program, was to spend money in areas for incremental improvements in those networks and then come back and spend the public's money in the same places again, and again, and again. The areas in RDOF, by definition, those were areas that got funded in the Connect America fund one. The first Connect America fund one program, then the Connect America fund two, right-of-first-refusal, then RDOF. Again and again and again. Over a period of just 10 years, three slugs of money.
Jonathan Chambers: Whereas if the funding had gone for fiber the first time around, you wouldn't have had the need to do it. And that is the mistake of conflating speed with network capability.
Christopher Mitchell: So before we run out of time, let's talk about Conexon Connect, the super-fast version. This is something new for you. You're going to be working with electric cooperatives in which they will generally or always own the fiber optics and you will be providing the services.
Jonathan Chambers: Yes, so earlier this week, I guess by the time anybody hears this, it won't be this same week. But at the beginning of February, we held an announcement down in Atlanta at the Capitol with the governor of Georgia, with the Lieutenant Governor of Georgia, with the Speaker of the House, with the Public Service Commission, legislators, and most important, our partners two electric co-ops, two of the first that we've been working with. And the partnership looks like this. The co-ops will fund the construction of a fiber network to all of their members. They will own the network. They will lease that fiber to us. We will find the electronics, we'll light the network. We'll provide services to all of their members. And we will invest in the networks as well. This allows the co-ops to do what they do really well. They've been in the poles and wires business for 80 years. That's really the role they play here. And I'm not diminishing their role. That's the critical piece. Not just poles, but wires, last mile wires, last 100 yard wires, wires to every home, fiber.
Jonathan Chambers: And the role we play is one that we're accustomed to playing. We build networks. We built over 30,000 miles of fiber networks last year. We have already on the books 50,000 plus miles to be built this year. We'll build the network, and we'll light the network, and we'll operate the network ourselves. This allows the co-ops to play a role that they're comfortable with. It allows us to play a role we're comfortable with. We announced the first two in Georgia. Other agreements have been worked out, we just haven't made announcements. We're using the RDOF that we just won, in part, to help subsidize the operations of these networks in the early years. The way really wants you to think about the art of funding, it's not a CAP-X program. It funds operations. It should be a sufficient amount of money for you to fund operating losses in the early years until you've built up a large enough subscriber base, so that you can stand on your own without any government subsidies. If you haven't run your own numbers and seen that by the end of the RDOF period, 10 years from now, if you can't stand on your own with end-user revenues, revenues from selling phone and Internet access, then you probably miscalculated in your RDOF bidding. That's really what I think happened and the reason I mentioned defaults before.
Jonathan Chambers: You'll see a lot of people miscalculated in their bidding. I made this comment the other day that folks get caught up in auctions and they make mistakes in their bidding. I've been involved in FCC auctions going back to the very first one over 25 years ago. I understand there's that auction fever that occurs. This FCC, if they would, I think they've got a chance to reverse some of the error that occurred in the RDOF auction by examining what can really be done with the technologies and by examining the capabilities the winners have to build networks. The program is thought of as a service-provider program. That is, you're getting subsidies to provide service or make service available to be technically accurate. It's really a construction program. Your obligation is to build networks. And I think the FCC's examination should be more of what is a winning bidders capability for building the number of miles of fiber they'll have to build. On the technology side, what is the capability of the technology they're using? Not some future technology. What's the capability today as it has been implemented today?
Jonathan Chambers: I think if the FCC examines that and then do something that I've been suggesting, which is uphold a general amnesty for people who might have made a mistake in their bidding, so they can return the geographic areas, so the FCC can hold a new auction. I still think auctions are the right way to do some of this. I think we could have a second RDOF yet this year with biters who are fully capable of delivering. I was thinking the other day, I don't know is a good analogy or a really homely one, RDOF has been in process for a long time and the FCC I thought it done a terrific job most of the way through. The analogy I was thinking is there was a football game earlier this year between the Giants and the Eagles. I don't know if you're a football fan.
Christopher Mitchell: An Eagles fan, because who likes the Giants really?
Jonathan Chambers: Yeah. Right. Well, you might remember them. This was a Thursday night game and Daniel Jones, a quarterback for the Giants, broke free on a run. He was running from about the 12 yard line [crosstalk 00:32:50]-
Christopher Mitchell: I may never forget that night.
Jonathan Chambers: Right. And so he is open. Open field ahead of him. It would have been the longest touchdown run by a quarterback in NFL history. And he got too far out over his skis, so to speak. He stumbled, he tripped, he fell and was down at the eight yard line. Now that's kind of the way I feel about the FCC and RDOF. They had done a great job. Open field ahead of it. It had the largest funding program for rural broadband. Rural broadband had become one of the most significant policies for the government in the midst of a pandemic. It had a ton of interest in bidders and right there with a goal line ahead of them, they made two unforced errors. They tripped on their own feet and fell. One of them was to grant a technology that is not used today to deliver gigabit service in rural areas, that is fixed wireless technology. And the other was to grant in their applications gigabit bidding for companies to build fiber networks where that wasn't their history, where that wasn't their experience. The FCC sometimes likes to think that they're going to enforce on the other side of these auctions. That is, they're going to, if somebody doesn't deliver, they'll catch them on the back end. The back end is too late for a lot of these areas. You can't catch him on the back end.
Jonathan Chambers: The FCC needs to get this right now. Getting it right for three years from now or trying to correct the mistake three years from now is a really hard thing for a federal agency to do. So I hope they do examine companies' capabilities to deliver and I hope they take a second look at this technology question.
Christopher Mitchell: Let's talk about that. So Vantage Point Solutions has a new paper about why they're so down on the ability to deliver gigabit wireless to large numbers of people in areas. But I think, talking to you, I'd like to focus on empirical evidence. You ran the rural experiments program. You had experience with fixed wireless claims in that being overstated. You watch closely as CAF allowed fixed wireless to, I believe, do 100 megabit by 20 megabit. We still having a year, I think, for some of those builds, but there's reason to believe that they're not going very well. Just fill that out a little bit in terms of what you've actually seen regarding fixed wireless claims in similar programs over recent years.
Jonathan Chambers: Yeah, somebody was asking me the other day about new FCC data collection effort [inaudible 00:35:56]. And I said the FCC has a lot of data they don't use. I'm happy to comply with FCC requirements and submit data. But every now and again, they ought to examine how much of the data they're actually using or whether they can get other data differently. And what I had in mind, specifically, was are the economists in my group when I was at the FCC, so the Office of Strategic Planning houses a lot of the economists at the FCC, they were always interested in pricing information, of course, and actual speed information. There's commercial information that you can buy that provides that. Ookla, of course. So the FCC has data. They collect billions of data points. They have data on the speeds offered by fixed wireless carriers and they chose not to use that data in making their determination. And as they chose to ignore the data that they had to make a decision that was counter to the data that they had, all they really looked at were the 477 claims, the 1% or something of the population, where a provider claims to make fixed wireless service available all in urban areas at gigabit speed.
Jonathan Chambers: But they didn't look at the subscription data that the FCC had. And the other thing that they could use, they subscribed, and maybe they do by now, they weren't when I was there, they subscribe to Ookla's data, they could see for themselves the actual speeds being delivered by the companies in these areas where the FCC wants to know. The FCC historically has been reluctant to because of mistakes that it made in funding speculative technology. It ought not fun speculative technology. Now there's too much at stake if the speculation doesn't turn out. Not only does the public fund a loser, but the people who live in those areas are losers.
Christopher Mitchell: Tell me if you disagree with this. The way that the FCC should fund speculative technology should be separate. I think there could be a lot of value. There's an Italian economist, Mariana Mazzucato I think her name is, I think she makes very good points. And tell me if the very least you would say, "Hey, if the FCC was to do that, do it that way, but don't experiment on this census block at the expense of this other census block."
Jonathan Chambers: Yeah, I worked for a couple of companies that were the recipients years and years ago have something called a pioneer's preference license. Pioneers preference were these speculative technological achievements that the FCC first award valuable spectrum licenses and then gave us discounts for those licenses. None of those technologies are in existence today. We stopped using them as soon as we met our FCC obligations and it probably cost the public hundreds of millions or billions of dollars. So my experience with the government funding some of this... I'm not talking about DARPA, creating ARPANET leading to the Internet. I'm talking about something much simpler. Should you fund something that doesn't exist today to provide service in an area where there is no service today? No. Since we all know that fiber to the home is capable of delivering gigabit service, because it already does, that's what you fund.
Christopher Mitchell: No, I think that's right.
Jonathan Chambers: That's all I mean.
Christopher Mitchell: I don't want to spend too much time on this, and it's possible that you and I disagree, but if the federal government said, "You know what? Independent of RDOF, we think Starlink could provide interesting competition to many homes across the United States. And we think it is worth dropping a billion dollars on them in the hopes that they will provide a more competitive environment in many areas. Not being the sole provider, but by actually saying that it will provide some measure of competition." To me, that seems worthwhile.
Jonathan Chambers: No. Not more because that's not what Starlink is doing. So there's nothing in Starlink's business plan that suggests that they would provide service in one census block to one location rather than a neighboring census block to a different location, because of the government subsidy. You're not building a network. We're not paying for the satellites. We're not paying for the launches.
Christopher Mitchell: Well, that's what I'm saying. I think it's ridiculous for Starlink to be in RDOF for those reasons. I'm off on a tangent, so we can just-
Jonathan Chambers: I just think government money should pay for things. Pay for roads, pay for bridges. If you're going to pay for telecom, pay for the fiber, because the fiber is the thing. Don't even pay for the electronics. The electronics are the part of it that aren't going to last for 50 years. Those you keep replacing in order to improve the service. I think pay for something that is real and don't pay for it for long periods of time. Pay for short. Look, as somebody who builds networks for a living and somebody who's been on the other side of it, helping policymakers make decisions, I'm telling you what works better. Don't try to figure out what might work 10 years from now. Pay for what you know works now and will still work 10 years from now. And won't require additional funding 10 years from now. Mostly what I hope the Biden administration will do, what Jessica Rosenworcel and others will do at the FCC is to say, "Look, we know fiber works. We know fiber is superior to all the other technologies. Let's fund that." Well, can you move in a direction? Can you drive a car on a thing? You say, "We want a highway," not, "We want a dirt road. I can drive my jeep on both., but I'd rather have the highway if you're going to pay highway funds."
Jonathan Chambers: And I know I've made this comment to you, I made it for others. The basis for the RDOF, the basis for the Connect America Fund, the basis for the ACA program, the basis for all of these is a GPON network fiber to the home Greenfield build. That's what the public is paying for. That's what the public should get. Anybody that can't build one of those, let them look for some other program.
Christopher Mitchell: Yeah, so let me just say as a wrap up to that, that my argument falls apart under my own logic, just in the sense that I do not think the government should spend a billion dollars helping to create what I think will be a space monopoly. But to some extent, I'm willing to forgive the idea that technologies that have some perspective could have some government funding. And I think that for people who want to read the enterprise data or some of her more recent work, I think it's a compelling argument. This is not the best example of it. So let me ask you that come back to the gigabit wireless. And so you answered that well regarding the FCC is ignoring its own data and data that it could collect that would tell it that gigabit wireless has not been performing well enough to trust it with this. Now, is there anything else you want to supplement that with regarding some of the experiences of what you saw in the rural experience. And in particular, I just have a sense, some people will listen to this and be like, "John doesn't like fixed wireless." And I think in these years of knowing you, what I think you would say is, "First of all, we want to have high-quality access to everyone that's reasonably comparable. Fiber can do it economically."
Christopher Mitchell: But I also think that you would say that you've seen that there are fixed wireless companies that are honest and they're out there competing in the marketplace. And there are other fixed wireless companies that are coming here, they're gaming the system and they're kind of ruining it for everyone.
Jonathan Chambers: No, actually the [crosstalk 00:44:26].
Christopher Mitchell: I'm wrong, wrong and wrong today.
Jonathan Chambers: No. This isn't about what I like, it's about the right investment. If somebody wants to... Mr. Musk invest his money in a satellite network or the same with Mr. Bezos, let him do that with private funds. If somebody wants to build a fixed wireless network, let him do that with private funds. I hold public officials to a higher standard than what speculative ventures. I don't participate myself in the stock market anymore, because I don't have enough time. It's a it's a gambling joint. I don't have enough time to pay attention to it. You want to invest your money privately, fine. Public officials have a greater responsibility. Their responsibility is to get it right for the public. There isn't anybody, and I've been in this business a long, long time. You ask the experts that's supposed to be an expert agency, "What would you invest money in that you expect is a transmission medium?" That's what we're talking about. We're not talking about technology, after all. A transmission medium fiber, or spectrum, or copper, or coaxial cable? "What would you invest in that you expect is going to be capable of delivering the traffic that's going to traverse the Internet decades from now?"
Jonathan Chambers: If you find anybody who says anything other than fiber, don't listen to them. You're not-
Christopher Mitchell: How about Charter building a whole bunch of new coax in the year 2024 with public dollars?
Jonathan Chambers: Oh, I don't know that they're doing that. They might be building fiber networks.
Christopher Mitchell: Oh, I think they might be, but I think they're going to be building a fair amount of coax from what I'm understanding. It's weird.
Jonathan Chambers: I don't know. Look, they've said they're going to invest $5 billion and that what they said the other day, and they got a billion and a quarter or so out of RDOF. So they've given an indication as to how much money they think it will take to build their networks in the RDOF areas. Look, good for them. Comcast won't do that. [COPS 00:46:52] won't do that. Let's see if Charter is able to do it. Let them build in rural areas today. But they're they're willing to put their own money and invest their shareholders money and build out networks in rural areas. Good. I think they're bidding in the auction has revealed some mistakes in the FCC's auction design. I don't think package bidding should be allowed to be used where it's a preclusive bidding strategy, which is what happened in the auction. In the auction, the FCC allowed for areas where there were bidders to go un-awarded, that's not a word, where there was no winning bidder, even though there were bidders willing to build fiber to the home, because of the package bidding by charter. I think that error should be fixed. I think there were other software errors and designers the FCC made in the RDOF. All of those, though, should be fixed for the next auction. They're side points, though, to the big point.
Jonathan Chambers: Anybody who's awarded this funding from the FCC should be capable of delivering. And this gets back to my earlier point. If you're going to take on a commitment where the government doesn't know whether you met that commitment four years from now, put in some nearer term guardrails. Don't discover some bad news years from now. The very first step I take, my recommendation is if somebody has to build, first, you should know how many miles of fiber you're going to have to build over the next four to six years. You better have that right at the outset, because you're raising money on it. Charter seems to have an idea. I can tell you how many miles we have to build. You ought to know how many miles you have to build. Let's say you have to build 100,000 miles, which will be the case for some of these winning bidders. If you have to build 100,000 miles, you ought to be asked how many miles of fiber you built last year. If you didn't build 10,000 miles even or 20,000, if you didn't build 5,000, where's your capability to build that many miles? Because this isn't the kind of thing. And people have said to me oh, they'll just go hire somebody too it. It doesn't work like that. This is hard work.
Christopher Mitchell: Not only that-
Jonathan Chambers: [crosstalk 00:49:17], you've got to get materials, you've got to get enough construction labor, and you've got to raise the capital. You're going to have to spend billions of dollars as Charter said it would. If you're not able to show the FCC that, then the FCC either ought to kick you to the side or it ought to say, "Okay, you told me that you're going to be able to build this many miles next year. We're going to check in on you. If you haven't built somewhere close to that, we're going to pause your project" Don't wait three years.
Christopher Mitchell: Yeah, and I would say one other thing is that if you were going to be doing this massive hiring spree, some of the other providers in these areas would notice, because it would be their crews you were trying to pick off. And so one of the things I've been doing talking to some folks in different parts of the country, no one's seeing unseen forces or new guys coming in and starting to staff up. The labor markets aren't seeing that. So I feel like we would start to be seeing that if that were the case. I think there's a lot of concern with whether or not some of these entities even plan to really move forward or if there's some other kind of just weirdness out there.
Jonathan Chambers: Again, really I'm not accusing anyone of bad behavior, bad [inaudible 00:50:33]. I'm not. I'm saying as a former government official and somebody who now works with government programs on the other side, if you want to protect the public's money, look to see what the capability is today of a company that where you're going to reward these large amounts of money. If they haven't been doing what they're supposed to do, put in some guardrails. That's all. We started planning for our post-RDOF projects over a year ago. We lined up construction labor. We lined up materials. We started doing that a year ago. If somebody tells you they're just now contacting whoever, Corning or somebody, about getting some fiber, you know they're not really in the business. If they don't already have commitments for their fiber, they're probably not already in the business. You ought to question that as a government official.
Christopher Mitchell: The last question I want to hit you with is just some of these areas, a fair number of areas, the percentages of the reserve price are so low, it doesn't seem possible to build in that area. Let me put it this way. If we were to see people able to build with the low subsidies in some of these areas, it would suggest to me that we are about to have a remarkable era of competition, because these business models will work almost everywhere without subsidy, if they can build at 1% of the reserve price in hard to build areas.
Jonathan Chambers: But one of my colleagues did a quick search, and I should pull this up again, to your point. The number of 1% bids placed in this auction was astounding. In the CAF auction, we didn't get to the 0% round. In the CAF, it ended at the 10% round, which was low in and of itself. But we had already won our money well before the 10% round in the last auction. This auction, you got to the 0% round. You had to place a bid of at least 1% and there were a lot of them. There were companies, again, who aren't even in the business, placing 1% bids. To your point, if you could do it for 1% of the reserve price, you could do it for zero. Why aren't you building that network today? Those are preclusion bids. Those are blocking somebody else from getting the money, maybe because you intend to get there. I view that as part of Charter strategy, but I don't know. That is, Charter, if they'd already planned to build in a certain area, well, maybe they wanted to block anybody else from getting money and competing with them. So there's a logic to that.
Jonathan Chambers: But if you're not already, and this is the striking thing in that little bit of research we did, who placed more 1% bids, who won a lot of 1% bids? Those weren't companies like Charter or an electric cooperative that was already planning to build to its members. These were new entrants and these were, in some cases, financial speculators. It doesn't make any sense to me. I get the 1% bid as a way to block somebody else. I understand that, if you're already intending to build a network, but that's not the behavior that we saw in a lot of the bidding. It's why, for those types of bidders who want at 1%, you really should say, "Well, how are you going to do this? Show me your history of doing this very thing. If you don't have a history of it..." This isn't a game for the small. These are large scale infrastructure projects. You better have a lot of bucket trucks and a lot of personnel. You better have already ordered your fiber and your strand. You better be ready to run. And that isn't the bidding behavior I witnessed in this auction.
Jonathan Chambers: This was a different auction than any of the others that I saw with maybe the exception of the old C Block auction in 1996 or so when NextWave won a whole bunch of spectrum, went into bankruptcy, was able to emerge from bankruptcy with the spectrum and then sell it. This feels more like that.
Christopher Mitchell: John, thank you so much for your time today and your hard work in serving rural America.
Jonathan Chambers: All right, man. Good to see you.
Christopher Mitchell: It's good to see you.
Ry Marcattilio-McCracken: That was Christopher talking with Jonathan Chambers. We've transcripts for this and other podcasts available at muninetworks.org/broadbandbits. Email us, @podcastatmuninetworks.org with your ideas for the show. Follow Chris on Twitter, his handle is @communitynets. Follow muninetworks.org stories on Twitter. The handle is @muninetworks. Subscribe to this, and other podcast from ILSR, including building local power, local energy rules, and the composting for community podcast. You can access them anywhere you get your podcasts. You can catch the latest important research from all of our initiatives, if you subscribe to our monthly newsletter @ilsr.org. While you're there, please take a moment to donate. Your support in any amount, keeps this going. Thank you to Arne Huseby for the song, warm duck shuffle, licensed through creative commons. This was Episode 448 of the Community Broadband Bits Podcast. Thanks for listening.