Seven associations representing broadband providers sent a letter to the FCC yesterday urging the commission to revise the letter of credit (LOC) requirements proposed for the Rural Digital Opportunity Fund (RDOF). The commission is scheduled to vote later this month to establish the fund, which would award as much as $20.4 billion through a reverse auction to help cover the cost of deploying high-speed broadband to areas lacking the service.
“If modifications to the LOC requirements are not made, many companies could be effectively barred from participation in the auction and those that do will not be able to bid on the full amount of locations they might otherwise be able to serve because of the difficulties in obtaining and the cost of the required credit,” the associations said in the letter.
Associations signing the letter include organizations representing electric cooperatives, cable companies and fixed wireless providers, as well as telcos.
- NCTA – The Internet & Television Association
- National Rural Electric Cooperative Association
- NTCA – The Rural Broadband Association
- USTelecom – The Broadband Association
- Wireless Internet Service Providers Association
- WTA – Advocates for Rural Broadband
The purpose of the letter of credit requirements is to help ensure that the government does not lose money on broadband deployments that are not completed – a goal the associations said they supported. But according to the associations, the specific LOC requirements are too strict and “conservatively will result in over $1 billion in RDOF support (6-7% of the total Phase 1 funding) going to banks and other financial intermediaries rather than to building broadband in rural communities.”
RDOF Letter of Credit Requirements
This isn’t the first time the FCC has been criticized for establishing overly restrictive LOC requirements for broadband providers. When the commission conducted a reverse auction to award funding in the Rural Broadband Experiments program several years ago, winners were required to obtain a letter of credit from one of the nation’s top 100 banks – a requirement that some winners were unable to meet and therefore had to abandon deployment plans.
The FCC expanded the pool of potential lenders that could provide LOCs for the Connect America Fund CAF II auction conducted in 2018, and according to a draft of the RDOF order, the LOC requirements proposed for the RDOF are similar to those used for CAF II. Specifically, winners would be required to obtain an irrevocable LOC covering the first year of support of a winning bid. The amount that the LOC would have to cover would decrease as the funding recipient met certain deployment milestones, the FCC said.
The broadband provider associations’ concerns about the proposed LOC requirements for the RDOF stem from the fact that the RDOF program will award much more funding than the CAF II program did. The CAF II auction awarded less than one-tenth the amount of funding slated for the RDOF.
“Given the magnitude of the RDOF, . . . the LOC requirements will be a gating factor to participation for many companies, large and small,” the letter stated.