FCC Draft Order Would Loosen RDOF, CAF II Auction Financing Rules
The item would swap out Weiss ratings and let RDOF winner reduce their letters of credit sooner.
Jake Neenan
WASHINGTON, Nov. 20, 2024 – A draft of an order up for consideration at the Federal Communications Commission’s December meeting would loosen some financing rules for its broadband subsidy programs.
The public draft, released Wednesday, would ditch the agency’s current system for determining which banks are eligible to issue letters of credit to program participants. Should the order be adopted, a bank would have to be considered “well capitalized” by at least one of the federal agencies that regulate banks – the Federal Deposit Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the Currency. That’s the highest rating those agencies issue.
The rule changes would apply to the agency’s reverse auction-based subsidies, including the $6 billion Rural Digital Opportunity Fund and the $1.8 billion Connect America Phase II Auction. They would also extend to the agency’s 5G Fund, which had its rules finalized in August but hasn’t yet been implemented.
RDOF participants flagged earlier this year that large numbers of banks were seeing their grades lowered below a B- by the agency’s current ratings firm, Weiss, making it difficult to find a qualifying letter of credit.
The number of eligible banks fell from about 3,600 in early 2022 to about 2,000 in March of this year, leading to the agency pausing its reliance on Weiss and ultimately seek comment on changing its rules.
The draft order said the FCC estimated based on industry comments that more than 4,000 banks meet the “well capitalized” standard, which it said would make it “unlikely that our rule change would lead to disruption for program support recipients, as we expect that any bank that has a Weiss bank safety rating of B- or better will also be well capitalized.”
The agency would give a six month transition period before providers would have to find an LOC under the updated rules. They would also have the option of holding their existing LOC until it expired.
“Put differently, if the support recipient’s letter of credit is from an ineligible bank, based on the rule we adopt herein, we will nonetheless consider the letter compliant until it expires and is up for renewal,” the agency wrote in the draft.
The rule changes are intended to “relieve administrative and financial burdens on broadband providers,” FCC Chairwoman Jessica Rosenworcel said in a statement. The December meeting may be the agency’s last with Rosenworcel at the helm.
Other RDOF, CAF II Auction updates
The draft item would allow RDOF participants to reduce their letter of credit to one year of support if they build out to 10 percent, rather than 20 percent, of their required locations in the first two years.
The move “would free up capital to facilitate more broadband deployment, while still requiring proof of substantial network construction,” the agency wrote.
CAF II auction participants would also permanently be able to follow RDOF letter of credit rules, which even without the proposed change require smaller yearly increases and allow providers to reduce their letters by a larger amount sooner into deployment. The agency has been extending a waiver applying RDOF financing rules to CAF II auction participants since 2020.
