Rural Broadband Auction Results Raise Concerns About Execution, Financial Risk
Allocation of RDOF funds designed to bridge the digital divide draws scrutiny
DENVER (January 25, 2021) — The results of the first round of the Federal Communications Commission’s Rural Digital Opportunity Fund (RDOF) auction left many industry participants questioning how the commission decided to allocate the funds. Among the concerns raised was the FCC’s decision to award $885.5 million to SpaceX for its unproven Low Earth Orbiting (LEO) satellite business.
Additionally, some Wireless Internet Service Providers (WISPs) received a significant amount of government support that appears to be much larger than anything they have experience deploying. Naturally, this raises questions about their ability to execute on that scale and to secure the necessary letters of credit.
A new report from CoBank’s Knowledge Exchange examines what it would take for the wireless providers who were awarded RDOF funds to meet their data speed claims, and the potential risks of falling short of their build plans.
“From a technology perspective, we can see a path to how these networks could be built,” said Jeff Johnston, lead communications economist, CoBank. “Fixed wireless equipment has evolved and new spectrum business models are enabling smaller operators to build carrier-grade networks at reduced costs. However, execution and financial risks could get in the way of deploying them.”
The RDOF is a 10-year, $20.4 billion broadband funding program that is repurposing legacy landline support from the Universal Services Fund. It is the FCC’s latest broadband incentive program and its largest effort to close the urban-rural digital divide.
RDOF is broken down into two phases. The first phase is exclusively for unserved areas while the second phase includes underserved markets. Phase one funds were awarded via a reverse auction whereby service providers bid on markets they wish to serve. Multiple sellers competed which enabled the FCC to maximize technological robustness for the best price.
The FCC is technology agnostic, but it weighed bids based on speeds and latency. Fixed wireless played a key role in the RDOF as bids that included fixed wireless represented almost half of the proceeds awarded to the 10 recipients. Historically, fixed wireless networks in rural America have largely consisted of Wi-Fi networks using unlicensed spectrum and have struggled to provide consistent throughput speeds.
On the financing front, RDOF winners are required to obtain a letter of credit (LOC) so that in the event they fail to meet their buildout requirements, the FCC has recourse to claw back whatever awards that fell short of the commitment. And while this seems straightforward, problems arise when the winning bidders do not have the financial strength to qualify for the necessary LOC.
The decision to award SpaceX with $885.5 million was even more shocking than the dollars allocated to some of the smaller fixed wireless operators. SpaceX is a private company owned by Elon Musk, the richest person in the world. SpaceX plans to offer high-speed satellite service to remote parts of the world by deploying thousands of LEO satellites, yet it remains an unproven business model for providing broadband connectivity to rural America.
“It’s important to recognize that RDOF success is defined by the FCC effectively distributing Universal Service Funds that maximize the impact on bridging the digital divide,” said Johnston. “Time will tell if they pulled it off.”
Read the report, RDOF Broadband Results Raise Concerns About Execution, Financial Risk.
About CoBank
CoBank is a $148 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.