RDOF Winners Seek Amnesty Amidst Rising Costs

WASHINGTON, March 26, 2024 – A coalition of winning bidders in a federal broadband expansion program is looking to forfeit the awards they secured, citing an unprecedented surge in broadband deployment costs that has drastically altered the deployment landscape since the conclusion of the auction.

The winners of the Rural Digital Opportunity Fund appealed to the Federal Communications Commission Friday to grant a 30-day amnesty period, during which they can opt to withdraw from their awarded positions without facing severe penalties or repercussions.

In their submission to the FCC, the winning entities assert that broadband construction costs have surged post-auction at a minimum of 30 percent, but in some cases by as much as 100 to 300 percent.

From the perspective of the winning bidders, these increases in deployment costs could not have been foreseen by any RDOF auction participant during the November 2020 bidding phase. Therefore, they argue they “should not be forced to shoulder the entire financial burden of these huge and unforeseeable cost increases.”

These winners had previously filed an emergency petition to the FCC seeking additional relief in August 2023. Their requests included more funding, relief from letter of credit requirements, and the ability to access RDOF payments for years 7-10 within the second year.

They emphasize several factors driving these escalating costs, including unforeseen impacts of the COVID-19 pandemic, increased demand for network equipment due to another multi-billion dollar federal broadband funding program, and inflation spurred by changes in federal fiscal policy.

The FCC initiated the proposal to grant limited amnesty to recipients of two major FCC broadband expansion initiatives in early March, so that more communities are eligible to receive funding through the $42.5-billion Broadband Equity Access and Deployment program.

If the amnesty period is approved, companies that are unable to fulfill their contracts made under the FCC’s Rural Digital Opportunity Fund or the Connect America Fund Phase II can relinquish them without facing full penalties, before BEAD funding is released to states.

As outlined in BEAD program guidelines, communities that have previously obtained grants from other federal broadband initiatives, including the RDOF and CAF II, are ineligible from accessing any portion of the funding allocated under BEAD.

States and local officials support granting RDOF amnesty

State and local officials have also expressed support for the amnesty period, sharing concerns that RDOF's extended timeline may uncover instances where grant recipients default or fail to meet deployment requirements until long after BEAD funding deadlines have passed.

The County Supervisors Association of Arizona informed the FCC that currently over 56,000 broadband serviceable locations in largely rural areas of Arizona are ineligible for BEAD funding due to RDOF awards. 

The association’s comments filed Friday state, “While some RDOF awardees have begun engaging local governments in broadband deployment processes, there is a notable lack of engagement from other grant recipients."

"With RDOF's longer deployment horizon, it may remain unclear if these awardees will default until after the BEAD program is underway," CSA argues.

The Rio Grande Council of Governments' Upper Rio Grande Working Group representing a seven-county region in the southwest corner of Texas encompassing El Paso, Big Bend National Park, and Guadalupe National Park filed comments Monday to express similar concerns. 

“There are several RDOF and CAF II projects located in our region. At least one has already defaulted and others will undoubtedly follow suit."

The working group attempted to contact RDOF winners early on to inquire about their interest in joining forces with ISPs in the region who could assist in delivering services. However, the group reported that none of the RDOF winners replied to their inquiries. 

"We need to be able to plan for the region so we are ready when funds are available and the absence of such data makes it extremely challenging.” 

The council's represented geography is categorized as rural or frontier rural, encompassing a population of 1 million people. Both rural and urban areas within this region suffer from insufficient access to broadband infrastructure, they said.

Texas Rural Funders issued comments Monday in support of granting RDOF winners relief, stating "With over 4 million rural residents, Texas has the largest rural population in America, and the most to lose from current barriers to BEAD funding."

In Texas alone, nearly two dozen RDOF and CAF projects have pledged to connect more than 300,000 locations to broadband internet.

With BEAD funding only able to go to unserved and underserved areas, many of those locations will be unable to access BEAD funding due to 'receiving' support from programs like the RDOF and the CAF II.

TRF argues that many rural Texas communities are currently caught in a no-win situation.

Impact of RDOF defaults on rural broadband expansion

The proposal to pardon award recipients from broadband deployment commitments without subjecting these companies to the full penalties outlined by program regulations comes from a letter penned to the FCC by nearly 70 broadband experts, trade associations, internet service providers, state and local officials, nonprofits, schools, unions, and more.

The letter raises concerns regarding the progress of the FCC's broadband expansion efforts, pointing out that “there are a large number of census blocks throughout the country where RDOF and CAF II awardees have not even begun to build their networks for a variety of reasons.”

To further incentivize relinquishment, the letter calls for the commission to consider increasing the penalties for awardees who default after the proposed amnesty period is over.

The concern that communities might miss out on the opportunity to receive federal funding for broadband expansion if the RDOF or CAF II awardee in their area fails to fulfill their obligations is significant. 

Near one hundred of RDOF awardees have already defaulted on their awards. The most recent instance occurred in recent days when Altice USA informed the FCC of its intention to relinquish 18 census block groups in Louisiana. 

Of the $9.2 billion tentatively awarded in the FCC’s RDOF auction, over $3 billion went into default due to unforeseen financial, regulatory, and operational obstacles. 

And, out of the $10 billion expended in the CAF II auction by 2021, 93 percent of households were provided with only 10 * 1 Megabit per second service, comparable to antiquated DSL connections.

Many of the awarded service areas under RDOF are situated in remote, rural areas that are difficult to access, yet stand to greatly benefit from BEAD.

Stakeholders have the opportunity to provide input on the matter until the end of the day on Tuesday, March 26. The reply comment period will subsequently remain open until April 9. Following this the FCC will issue its final decision, as stated in a public notice.

Updated at 5:13 p.m. ET - In a recent communication to the FCC, the National Rural Electric Cooperative Association said that they "vehemently oppose" the request for amnesty coming from RDOF awardees who default on their commitments to serve rural communities.

"While some awardees defaulted due to unforeseeable circumstances, many edged out fully capable rural providers through gamesmanship, by deliberately underbidding the competition or being irresponsibly unprepared to undertake a proper broadband buildout."

The NRECA argues that to grant partial amnesty with either reduced or no penalties would set a dangerous precedent, and act as an impediment to the longstanding goal of closing the digital divide. The NRECA represents more than 250 co-ops working to deploy broadband to their members.