Charter offered some details today about its $1.2 billion Rural Digital Opportunity Fund (RDOF) win. Perhaps the most interesting detail is that Charter plans to spend $5 billion in total on the RDOF rural broadband buildout, which means the company will be investing $3.8 billion of its own money on RDOF projects.
It’s interesting news because it sheds light on what it took for any bidder to win in the RDOF auction, which awarded funding to bring broadband to unserved rural areas to the lowest bidder, with a weighting system designed to favor bids to deliver higher-speed, lower-latency service.
Charter was the biggest winner in the auction, measured by number of locations to be served. The company plans to make service at speeds up to 1 Gbps available to one million locations in parts of 24 states.
Charter’s revelation about its planned total investment suggests that other winners also may be planning to invest funding of their own that exceeds the RDOF money by a similar factor. Their business case may have required that in order to win.
Charter Rural Broadband
This discovery stands in sharp contrast with what occurred with the initial Connect America Fund (CAF) program, which awarded rural broadband funding to incumbent price cap carriers such as AT&T, CenturyLink and Frontier based on a cost model. Carriers had to commit to deploying broadband at speeds of at least 10/1 Mbps to portions of their local service territories where service wasn’t already available at that speed. Most carriers accepted most of the funding they were offered and several told investors that the funding covered the full deployment costs.
Investors want to hear that a company is spending money where it can get the biggest return and traditionally that hasn’t included upgrading existing rural networks to higher speeds.
What’s different for Charter is that the company will be entering brand new areas. Unlike with the incumbent price cap carriers, who were only positioned to get incremental additional business from the CAF investment, Charter expects to gain video and voice service as well as broadband. All three services will be delivered over the same infrastructure and all customers will be brand new sources of revenue.
Even before it won RDOF support, Charter had begun to emphasize rural areas, which comprised 30% of its recent expansion. Because rural areas require greater investment, a company serving those areas encounters less competition and therefore tends to get greater market share in comparison with competitive metro markets.
Charter views its rural broadband expansion as a means of gaining new customers for multiple services. The company notes in today’s press release that the investment “will drive additional customer growth via an expanded footprint” and also notes that “the presence of Charter’s modern communications network in these rural areas may result in economic development and more homes and businesses for Charter to serve in these communities.” The company also sees opportunity to undertake “additional buildout to adjacent communities, producing greater investment returns over time.”
Charter announced it plans hire more than 2,000 employees and contractors to support the RDOF and future rural buildout initiatives. The company notes the RDOF program alone will drive a 15% increase in Charter’s network mileage coverage.
Charter cautioned, however, that “the successful and timely execution of today’s announced initiative is dependent on a variety of external factors, including the utility pole permitting and ‘make ready’ processes.” The company notes that in metro areas, a single pole may serve multiple homes, while in rural areas, a single home may require connectivity to multiple poles.
In addition to its RDOF win, Charter also has won some state broadband grants, which are being used toward separate rural broadband expansion projects. The company said it “looks forward to participating in additional public-private partnerships to expand broadband access.”