When the FCC initially announced the results of the Rural Digital Opportunity Fund (RDOF) rural broadband auction, the commission touted the fact that almost all eligible areas that had winning bids and that 85% of those areas are slated to get high-speed gigabit service. But a new analysis from Fiber Broadband Association revealed some less positive aspects of the RDOF auction.
Rural broadband experts discussed the auction results and recommended changes for the next FCC funding auction on a webcast yesterday.
RDOF Auction Analysis
The RDOF auction was a reverse auction designed to award funding to the company that committed to deploying service for the lowest level of support. The auction used a weighting system to favor bids for higher-speed, lower-latency service, and that system likely was a major factor in generating such a high percentage of winning bids at the highest-performance gigabit speed tier.
The FBA analysis shows that nearly half (45%) of gigabit awards had winning bids of 21% of the reserve price or less. The reserve price was based on a cost model that estimated the amount of support that would be needed to create a business case for delivering a base level service. And while some people might interpret the 21% number to mean that the nation is getting a good deal on broadband, others have questioned whether that number is so low that some winning bidders may be unable to afford the build-outs to which they have committed.
Gigabit bids might have won an even higher percentage of locations were it not for an unintended consequence of the weighting system involving Space X, which is building a non-geostationary satellite broadband network.
Space X bid for virtually all eligible areas in the country. And because Space X’s bids were at the 100 Mbps low-latency performance tier, the company won out over bids for lower-speed or higher-latency service nearly everywhere, winning 85% of all non-gigabit awards, according to Fiber Broadband Association RDOF auction analysis.
An unintended consequence, however, was that the company also won out over gigabit providers in some areas. This occurred when there were two or more gigabit providers until the final bidding round and all those providers dropped out in that round, leaving Space X the winning bidder with lower-speed service.
Recommendations for the Future
Some stakeholders have questioned whether the FCC should have vetted some companies more closely before allowing them to participate in the auction, arguing that doing so might have prevented some unrealistically low bids or bids for unrealistically large areas.
One of the experts on yesterday’s webcast was Carol Mattey of Mattey Consulting and former deputy chief of the FCC Wireline Competition Bureau, who shed some light on this issue.
When the auction was being planned, she said, “the assumption was these were areas no one would want to serve” and the commission wanted to maximize the pool of potential bidders by making it easy to bid. She questioned whether the FCC would be open to undertaking detailed vetting of hundreds of applications prior to the auction, considering that some applicants might not ultimately participate in the auction.
She added, though, that for future auctions, the commission should consider limiting the geographic areas for which participants can bid based on participants’ current size.
Mattey also argued that the FCC should take steps to address the situation that arose when two or more gigabit bidders dropped out in the final round, potentially enabling a lower-performance bidder to win.
The FCC is currently in the process of reviewing the more detailed long-form applications that winning RDOF bidders were required to file and Mattey speculated that rather than rejecting some of the questionable applications, the commission instead may sit on them. If the commission rejects an application, the applicant can appeal the decision, she noted. But there is no deadline for completing the application review, which means that sitting on an application may be a more attractive option for the FCC, she said.
Another rural broadband expert on the webinar was Mike Romano, senior vice president of industry affairs and business development for NTCA—The Rural Broadband Association. Romano argued for more transparency on the part of the FCC for future auctions.
He noted, for example, that there was a lack of transparency regarding which auction participants could bid at which speed tier based on the technology intended for the deployment. Auction critics have noted that some companies were allowed to bid in the gigabit speed tier using fixed wireless while others were not allowed to do that.
The third expert on the webinar about the RDOF auction analysis was Tom Cohen, a partner at law firm Kelley Drye, who raised another concern that some stakeholders have expressed about the auction – the possibility that some bidders may opt to pay a fine rather than undertake the build-outs to which they have committed. He said he is already aware of at least one winning bidder that plans to walk away from the potential funding.
Cohen pointed to the private equity backing that some auction participants have as a potential concern. People involved in private equity only expect to succeed in four or five out of 20 ventures.
“If they wipe out here, it’s not an issue [for them],” he said.
Although Cohen didn’t offer a specific recommendation about how to address that concern, perhaps higher fines for non-compliance with build-out requirements would be another idea for the FCC to consider for the future.