RDOF Winners Seek Supplemental Funding for Covid-related Costs

WASHINGTON, August 3, 2023 – Winning bidders for the Rural Digital Opportunity Fund are pressing the Federal Communications Commission for supplemental funding due to Covid-related factors, despite the chairwoman’s response that the agency currently lacks such funds.

On June 20, representatives of the Coalition of RDOF winners met with FCC Chairwoman Jessica Rosenworcel‘s legal advisor to request more financing due to circumstances that “could never have been anticipated at the time of bidding.”

In the ex-parte notice letter, the companies pointed to the impact of post-COVID fiscal policies, such as consecutive interest rate hikes, which had triggered “spiraling inflation” and driven up construction costs. Moreover, the influx of federal grants intended to expand broadband infrastructure resulted in a “massive” surge in demand for broadband construction materials, equipment, and labor, also leading to escalated final costs, the group said.

As per the coalition’s estimation, those challenges have led to a fourfold increase in the total costs of network construction. The delivery time for these projects has also been extended by six to 18 months.

Therefore, the coalition is asking the commission to disburse additional funds from the initial $9 billion allocation, as the agency ended up authorizing only $6 billion following defaults of more than $2.8 billion by a handful of companies earlier this year.

Responding to a group of senators who wrote to the Chairwoman on June 12 asking about the FCC’s strategy to address concerns about RDOF funding shortfall, Rosenworcel said that the FCC “collects only enough funding through the Universal Service Fund contribution process to match the approximately $6 billion committed” and that the agency does not “have support in reserve readily available for reallocation.”

Philip Macres of the Klein Law group, on behalf of the coalition of RDOF winners, told Broadband Breakfast that the FCC could modify the contribution factor for the Universal Service Fund to direct additional money for RDOF. Macres then cited how the commission had previously adjusted the USF contribution percentage to facilitate extra funding for A-CAM, another federally funded grant catering to carriers providing broadband access to hard-to-reach, high-cost, and low-return locations across the country.

But financial support is not the only relief the group is asking for. In a letter dated July 14, the coalition pointed out that the FCC can execute various amnesty measures, all culminating in permitting companies to surrender their pledged coverage areas without incurring penalties if the required funding amount remains unaddressed. Additionally, they also suggested the FCC to expedite the distribution of funds or extend the funding period by another year.

In her letter on June 26, Rosenworcel emphasized the importance for the commission to uphold the rules it had set forth, following the agency’s proposal in May to impose $8 million in fines against 22 RDOF applicants who failed to meet their obligations.

“The Commission’s default rules are designed to impress upon recipients the importance of being prepared to meet all Commission requirements and be prepared to fulfill deployment obligations,” read the letter.

However, Rosenworcel noted that the FCC would still consider waiver requests on a case-by-case basis and “warrant a deviation from the general rule if such a waiver would be in the public interest.”

Opposition to coalition

Although the coalition’s efforts have yet to move the needle at the FCC, they have encountered strong opposition from the telecom association WTA-Advocates for Rural Broadband. On July 28, the association submitted a letter warning the commission against what they perceived as “gaming tactics” employed by those seeking additional funding.

“An obvious gaming danger,” said the letter, is the use of a strategy that offers an “unreasonably low” amount of money to win specific areas, and then ask for more funding later. Acceding to the request for additional funding would lead to unfair treatment of “responsible” bidders who opted to withdraw from the competition rather than compromising their prices beyond what was deemed “financially feasible or sustainable,” said the WTA.

Additionally, if the commission were to grant the coalition’s requests, this would set a very “problematic precedent for the future reverse auction,” it continued. The reverse auction model, where the lowest bidder wins the bid, serves as the primary method for distributing funds in RDOF and other programs like the Connect America Fund, and potentially the Broadband Equity, Access, and Deployment program, a flagship initiative of the Joe Biden administration that has been garnering significant media attention lately.

In the case of RDOF, the companies’ inability to follow through on their bid commitments calls into question the efficiency of the reverse auction approach, which has been a subject of considerable controversy in recent years. Some argue that it can incentivize companies to use their funds more efficiently, ultimately leading to a reduction in project costs. Its critics, including the WTA, contend that the reverse auction model tends to favor larger companies with a financial advantage, or potentially results in a compromise on service quality to accommodate the reduced prices.

In addition, industry insiders also expressed concerns that the reverse auction method exacerbated the situation by permitting incompetent bidders to win projects they were incapable of completing in the first place.

Nevertheless, the coalition’s request is the latest addition to the program’s tumultuous history as it has weathered numerous policy changes since the tenure of FCC Chairman Ajit Pai up to the current Chairwoman.

First, the FCC’s map used to identify unserved and underserved areas came under heavy criticism for being plagued with inaccurate and unreliable data. Then, the updated map came along which reshuffled the target locations, resulting in a surge of companies defaulting on areas they had committed to serve, as they cited the new data categorized those regions as already served.

Back in 2020, the RDOF program was hailed by former Chairman Pai as “the biggest step the FCC has ever taken” in bridging the digital divide and extending digital opportunities to rural America. Three years into what was supposed to be a decade-long plan and drawing more criticism than praise along the way, it remains uncertain whether RDOF will truly live up to Pai’s ambitious claim.