What Happens to the Estimated $2.8 Billion in RDOF Defaults?

Nearly every winning bid in the Rural Digital Opportunity Fund rural broadband funding program has now either been authorized or deemed to be in default. Of the $9.2 billion over 10 years tentatively won in the auction, over $2.8 billion has gone into default, according to an estimate from Cooperative Network Services, a rural broadband consultancy that has been keeping tabs on the program, shared exclusively with Telecompetitor.

Three of the 10 largest winning bidders — LTD Broadband, SpaceX and Starry — alone generated nearly $2.5 billion in defaults and there were many other smaller defaults. In some cases, all of a company’s bids were deemed to be in default. In addition, many companies had a portion of their bids deemed to be in default.

What happens with the money associated with the RDOF defaults?

The Federal Communications Commission has had no official word about that and didn’t answer a question from Telecompetitor about it.

It’s an unfortunate situation, said Paul Solsrud, product manager for Cooperative Network Services, in an email to Telecompetitor.

“The most unfortunate outcome… is the delay in getting better service to millions of people who really need it,” he said. “The providers are ready and willing to construct networks, and citizens are eager to get connected, but unfortunately, many rural Americans continue to play the waiting-game.”

“Many high-quality, community-based providers lost out in the auction due to low bids by competitors who ultimately defaulted.”

RDOF defaults

The RDOF program was designed to cover some of the costs of bringing broadband to unserved and underserved rural areas. Funding for an area was tentatively awarded to the company that committed to deploying service for the lowest level of support.

The FCC has taken considerable heat for not vetting applicants more closely prior to the auction, but instead relying, in large part, on a review of winning bidders’ long-form applications that were submitted after the auction.

Dissatisfaction with the auction may have played a role in federal lawmakers’ decision to put agencies other than the FCC in charge of more recent broadband funding programs, including the Capital Projects Fund, the State and Local Fiscal Recovery Fund and the Broadband Equity Access and Deployment program.

The existence of those funding programs may not bode well for the future of the RDOF program, as some people have questioned whether RDOF is still needed.

The total budget for RDOF was $20.4 billion over 10 years, of which the FCC planned to award up to $16 billion in the initial auction. Winning bids only came to $9.2 billion and, based on Cooperative Network Services estimate, only about $6.4 billion has been awarded, with few, if any, additional awards expected.

Potentially, the remaining RDOF budget of approximately $14 billion may never be awarded.

Carol Mattey, founder of Mattey Consulting and former deputy chief of the FCC Wireline Competition Bureau, offered her take on the situation in a phone interview with Telecompetitor.

As she explained, “The FCC has a budget for RDOF but that doesn’t mean USAC [the Universal Service Administration Company] has been collecting the money. USAC projects the money it has to disperse. USAC only projects disbursements to authorized recipients.”

Mattey doesn’t expect the FCC to move forward with further RDOF funding in the foreseeable future.

“At some point in the future, the commission might decide to move forward with additional funding if the BEAD program is unsuccessful in getting internet to everyone,” she said.

Mattey also noted that the FCC said last year that it would undertake a proceeding about ongoing support that may be needed to operate broadband networks after they are built in areas where revenues aren’t sufficient to cover those costs. She noted, however, that the commission has not yet begun that proceeding.

This piece was originally published on Telecompetitor on May 22, 2023, and is reprinted with permission.