Many stakeholders were shocked when it came to light two years or so ago that over a third of $9.2 billion in winning bids in the Rural Digital Opportunity Fund (RDOF) broadband program were rejected after the Federal Communications Commission (FCC) reviewed winning bidders’ long-form applications. And the tally of RDOF defaults isn’t complete yet.
Telecompetitor got an exclusive first look at an analysis to be released today from Benton Institute for Broadband & Society, which found that bids associated with nearly $112.8 million in additional RDOF funding are in default.
The additional defaults represent nearly 1.9 million locations that had been expected to receive service. And more defaults could be on the way.
The Benton Institute for Broadband & Society calls itself “a non-profit organization dedicated to ensuring that all people in the U.S. have access to competitive, high-performance broadband regardless of where they live or who they are.”
Telecompetitor got some additional information about the RDOF defaults from the Benton Institute report co-authors Drew Garner, director of policy engagement for Benton Institute, and Janie Dunning, state coordinator for ShowMe Broadband. We also spoke with several other sources.
The Benton Institute analysis was based on data that the institute formally requested from the FCC. Although the FCC previously revealed the total of pre-authorization defaults, it hadn’t compiled a complete list of pre-authorization and post-authorization defaults.
As the report authors explained, their analysis includes all defaults that the FCC had confirmed as of last week.
The report authors told Telecompetitor that they undertook the analysis because they wanted stakeholders to learn from what happened to RDOF to avoid having similar results through other rural broadband funding programs, notably the $42.5 billion BEAD program.
Pre- and Post-Authorization Defaults
The $112.8 million in “post authorization” defaults come on top of over $3.1 billion in the initial pre-authorization defaults, according to Benton Institute’s analysis.
As the report notes, and as Telecompetitor has previously reported, the pre-authorization defaults occurred, in large part, because winning bidders were not thoroughly vetted until after the 2020 RDOF reverse auction was completed. In that auction, funding for an area was tentatively awarded to the provider that committed to deploying broadband for the lowest level of government support.
Post-authorization defaults occur for a variety of reasons. Some authorized bidders said costs had risen unexpectedly because of the COVID pandemic and were unworkably high.
According to a Telecompetitor analysis based on information from Benton Institute, the company associated with the largest amount of post-authorization defaults, measured in dollars, is Mercury Wireless, which will not complete buildouts associated with over $46 million in RDOF funding.
That company is followed by Charter, which will not complete buildouts associated with over $31 million in RDOF funding. (It’s worth noting that Charter was the largest winning bidder approved for funding in the RDOF program and was slated to receive over $1 billion in funding.)
The company with the third-largest RDOF post-authorization defaults is Centurylink/Lumen, which will not be using $18.6 million in RDOF funding.
Other companies with post-authorization defaults exceeding $2 million include Wisper (over $3.2 million), Commnet (over $3.2 million), and Co-op Connections Consortium (nearly $2.5 million).
Several other winning bidders had post-authorization defaults totaling less than $1 million.
Penny Wise and Pound Foolish
The Benton Institute report authors praised the FCC for sharing the RDOF default data with them. The authors also encouraged federal and state policymakers to learn from RDOF, advising them not to be “penny wise and pound foolish.”
As the authors noted, the RDOF program aimed to expand broadband in rural areas and minimize costs in doing so. And in implementing the program, there was too much emphasis on saving costs, the authors argue.
As the authors explained: “When RDOF selected a winning applicant, all other applicants for that area were effectively denied. If the winner then defaulted, there were no ‘backup’ applications to take its place.
“Thus, every RDOF default prevented a different and potentially more viable project from moving forward. And, since one out of every three locations defaulted, huge swaths of the country were effectively locked into the digital divide.”
In large part, locations associated with pre-authorization RDOF defaults will be eligible for BEAD funding. But assuming the BEAD program is able to fund buildouts to those locations, the locations will have waited much longer to get broadband service than they would have if they had been funded in the RDOF program.
As Dunning put it, “They’re still without broadband and still waiting.”
Importantly, some locations associated with post-authorization RDOF defaults will not be eligible for BEAD because the RDOF defaults occurred after lists of BEAD-eligible locations had been approved by NTIA, the federal agency overseeing the program.
Impact Varies by State
The Benton report authors compiled a list illustrating the impact of RDOF defaults by state, including defaults that occurred before and after winning bids were authorized. The impact varied considerably by state.
Nine states saw defaults for 75% or more of locations that had winning RDOF bids.
Hardest hit was California, which experienced over $650 million in total defaults associated with over 340,000 locations.
Other states that were hit hard, when pre- and post-authorization defaults are tallied, include Minnesota (over $328 million for 111,435 locations) and Wisconsin (over $210 million for nearly 105,000 locations).
Post-Authorization Default Impact
Benton Institute also looked at the impact of post-authorization RDOF defaults.
As of now, the state hardest hit by post-authorization RDOF defaults is Michigan, which lost nearly $29 million associated with nearly 59,000 locations.
The other states that were hardest hit post-authorization are also in the Midwest. Wisconsin lost over $16 million in funding for over 13,000 locations. And Missouri lost over $16.7 million for over 21,000 locations.
Other states that lost over $5 million in post-authorization RDOF funding include Wyoming (over $9.8 million), Indiana (nearly $8 million), Colorado ($6.6 million), and Ohio ($5.2 million).
What happens to those locations that were slated for RDOF builds that won’t occur because of post-authorization defaults?
Carol Mattey, founder of Mattey Consulting and former FCC official, explained the situation in an interview and several email exchanges with Telecompetitor.
“I don’t see a clear path for them,” said Mattey of the post-authorization default locations that were ineligible for BEAD. “There is no immediate source of federal funding that would be available.”
She added that some of the locations might be able to obtain funding through the USDA ReConnect program or through a state program.
But at a minimum, those locations would have to wait longer than expected to get broadband.
“States that were disproportionately hit by RDOF defaults, particularly defaults that occurred after finalization of eligible locations for BEAD, are going to need to step up and devote their own resources to addressing those areas,” Mattey advised.
Given the current environment, she said “I don’t see the federal government coming to the rescue anytime in the foreseeable future.”
More to Come?
It’s unlikely that we have seen the end of RDOF defaults.
A hint of what may be coming can be found in letters sent to the FCC by winning bidders who have not met minimum buildout targets.
Companies whose funding was authorized in 2021 were required to advise the FCC by January 15 if they had not reached 40% of their RDOF locations by the end of last year, Mattey said. That’s the first milestone in the program that funding recipients are required to complete.
By Telecompetitor’s tally, at least eight companies out of about 100 that were required to report said they would not be able to meet this deadline. Unfortunately, most of them didn’t detail how far behind they were.
Mattey expects some of the eight companies to catch up quickly.
But as more time passes, missed milestones could signal impending defaults. Mattey expects to see a higher percentage of missed 40% milestones when the next batch of authorized RDOF winners is required to report next January.
“In all likelihood, the companies that were authorized first were those that had well developed applications that clearly demonstrated to the FCC their technical, managerial, and financial capabilities,” she said.
It’s worth noting that the FCC also has not yet declared defaults based on letters received from several other providers that have said they would be unable to complete at least some of their RDOF buildouts.
Penalties?
Rules for the RDOF program specify penalties for the FCC to impose on defaulters, but in some cases, the commission has been silent on that.
According to Mattey, the FCC uses a formula to calculate penalties and needs to know a company’s total number of defaults before it can determine the penalty.
At some point in 2027, she said the FCC will be adjusting each RDOF recipient’s deployment obligations from their original authorization for purposes of the FCC maps. She speculated that the commission may defer the assessment of the penalties until that location adjustment process has concluded.
What About the Unawarded Funding?
As the Benton report notes, $16 billion was allocated for the Phase 1 auction in the RDOF program.
An additional $4.4 billion was initially planned to be awarded in a second phase that Telecompetitor’s sources do not expect to happen.
And as defaults pile up, the maximum that could ultimately be awarded in the program is no more than $6.1 billion.
The amount of funding already doled out to winning bidders undoubtedly is considerably less.
Providers with pre-authorization defaults, representing about 95% of total defaults, received no funding. And authorized providers only receive funding as they incur expenses. No buildouts, no funding.
According to Paul Solsrud, broadband mapping specialist and product manager for rural broadband consulting firm Cooperative Network Services, only about $1.33 billion in RDOF funding had been dispersed as of November 27.
So what happens to nearly $14.4 billion in funding (and possibly more) that was budgeted for RDOF but won’t be spent?
As Mattey explained, “The budget for RDOF was just that — merely an ‘up to’ budget, not an actual commitment to spend the full amount of money.”
USAC, the company that determines funding needed for FCC broadband programs, projects the money it will disperse, she said.
As she explained, “USAC only projects disbursements to authorized recipients.”
And with little or no interest in a second RDOF auction, it appears that, at the most, RDOF will never be more than a $6 billion program.
Lessons Learned
Asked about lessons learned from RDOF, Solsrud said “It seems that we’ve seen the pendulum swing from not enough provider vetting in the RDOF program, to overly cumbersome rules in the BEAD program.
“Somewhere in the middle lies a good mix of making timely progress towards connectivity, while minimizing fraud and the general challenges that come with participating in a federally funded project.”
Benton Institute’s comments about lessons learned may be particularly appropriate as some parties advocate shifting BEAD funding from the most future-proof technologies such as fiber broadband to less costly technologies that have a considerably shorter lifespan, such as satellite broadband.
“The FCC’s pursuit of cost-saving ultimately came at the expense of connecting rural households,” said Garner. “The reverse auction prioritized cheaper projects, and when those projects defaulted, they effectively blocked broadband from reaching huge swathes of rural America. In short, RDOF was penny wise, pound foolish. “
Following are two charts provided by Benton Institute and referenced in this post. The full Benton Institute report can be found at this link.
