RDOF Funding: A Review of Auction Results and Progress
This article is the first in a series that examines the progress of Rural Digital Opportunity Fund (RDOF) auctions — with updates on the winning bids, relevant legislation, and insights you can use. First, we look back at the highlights of Phase 1 of the RDOF Auction, Auction 904, and how the process works.
The Rural Digital Opportunity Fund (RDOF) is a Federal Communications Commission (FCC) initiative designed to address the “digital divide,” providing funds to support broadband expansion into rural America. The $20.4 billion RDOF was initiated on August 1, 2019; the framework was adopted on January 30, 2020.
This rural broadband initiative is designed to fund high-speed fixed broadband projects serving rural homes and small businesses that currently do not have access. Broadband access is typically driven by usage and population density. So broadband suppliers often build where customers are: in and around cities and suburban centers where business congregates, and consumers live closer together. What has resulted from this form of broadband buildout is that rural areas often suffer from slow or non-existent broadband internet.
To address this gap, in 2013 the FCC reformed its “Universal Service Fund” and “Intercarrier Compensation” systems and launched the Connect America Fund (CAF) to support large telcos in building out faster broadband (10/1 Mbps) in rural and other underserved areas. This fund operated from 2015 to 2020 with a secondary “CAF II” fund that opened up in 2018 for bidders in areas declined by the large telecom carriers.
While the CAF programs did expand broadband internet access, the Covid-19 pandemic exposed some shortfalls. Businesses shifted their workers to work-from-home models and schools shifted to remote learning. This dramatic change in broadband usage — from “nice-to-have” to “critical infrastructure for both business and schools” — showed that broadband coverage was not yet achieving the aims. RDOF is the next iteration in FCC funding to close the broadband gap.
RDOF Funding Phases Explained
The distribution of RDOF funding is broken into two phases, awarded through reverse auctions over 10 years. Whereas a typical auction has ever-increasing bid amounts based on the winner paying a certain amount, in this reverse auction scenario, companies bid for ever-decreasing funding from the FCC — the lowest bidder (subject to some exceptions) wins.
The Phase I auction, with a budget of $16 billion, kicked off on October 29, 2020, and closed on November 25, 2020, with $9.2 billion in winning bids for the available census blocks. While not all funds were needed, based on the aggressiveness of bidders, the remaining funds will roll over into Phase II.
Phase I targeted five million homes and businesses in U.S. Census blocks that were “entirely unserved” by voice and broadband with download speeds of 25 Mbps or greater — an upgrade from the 10 Mbps speed reflected in the predecessor CAF — and more in line with today’s technology requirements. This allowed less-than-gigabit level operators to get involved and speed up deployment to these underserved areas sooner than might be possible with a higher threshold.
Phase II, with a $4.4 billion budget plus funds remaining unallocated from the Phase I auction, covers census blocks “partially served” and areas not funded in Phase I round. Additional funds left over from Phase I include: 1) funds not used because of heavy competition that drove down funding bids below the FCC’s target reserve price and; 2) funds not used because a winning bidder “defaulted,” by not completing or not being able to meet remaining funding requirements.
To ensure that the funds provided don’t just act as a stop-gap solution, but will support rural communities’ broadband needs into the future, the FCC prioritizes higher network speeds (1 Gbps) and lower latency (basically 5G equivalent or better) when selecting who to fund. This showed up in a weight (penalty) that is greater for bidders with slower broadband speeds proposed – the target (with no penalty) is 1 Gbps.
What happened in the FCC RDOF Auction Phase I?
In the Phase I auction (Auction 904), the FCC awarded $9.2 billion in funds over 10 years to 180 bidders. In this round, the FCC awards are based on census blocks that would cover 5.2 million locations in 49 states and the Commonwealth of the Northern Mariana Islands.
With an original budget of $16 billion and only $9.2 billion allocated, $6.8 billion remains that will be rolled over into the Phase II auction ($11.2 billion total to now be auctioned off in Phase II).
What caused the $6.8 billion gap between the FCC’s budget and the aggregated winning bids?
The FCC implemented a bidding round weighting scale that determined the percentage of capital costs to be funded that was specific to the bidder (based on their specific build model). The percentage to be funded would drop with each round. The lower thresholds likely led to some bidders not being able to deliver the required broadband infrastructure once the funding dropped below a certain amount. However, analysis indicates that many legacy broadband providers also looked beyond the ability to fund a competitive system and kept bidding to drive out competitors.
Winners in Phase I included:
- LTD Broadband. With an award of $1.595 billion, LTD Broadband came out on top in the auction. LTD provides wireless internet to 1.6 million people, primarily in the Midwest.
- Charter. Right behind LTD was Charter at $1.3 billion. It is the 2nd largest cable operator in the U.S. and also the largest of the telecom companies in the top 10 awards.
- Space X. a.k.a. Starlink, deploys internet via satellite. This novel approach, highlighted by its big splash serving Ukraine after traditional broadband services were knocked out by Russian forces, demonstrates the FCC’s openness to alternative solutions that break with industry norms. They won the #4 slot with $886 million.
- Frontier. With a heavy focus on serving rural and smaller communities, as well as being the 8th biggest broadband internet provider in the U.S., they came in at #7 with $371 million.
- Lumen. Bid under Qwest and previously known as Century Link, they came in at #10 with $262 million. They’ve been focused on building a fiber-based infrastructure for their services.
So why were these companies the big winners in the reverse auction, and what can be learned about structuring a winning formula?
There were a lot of moving parts in the auction process, detailed here. Here’s a simplified analysis of the nuances that determined success.
- Proven over unproven technology. This created a benefit for legacy providers and larger entities with a solid track record of service delivery.
- Fiber-based technologies were preferred. Satellite technology was out, except for Space X. With Space X, and the expectation of gigabit satellite technology showing promise from tests, the FCC kept that door open for Space X. Otherwise, fiber was the preferred method to deliver the high speeds the FCC was targeting.
- Lower capital costs. This was another advantage for the larger operator as they had the ability to scale easier than smaller local providers.
What about FCC RDOF Auction Phase II?
RDOF Phase II, which covers the remaining $11.2 billion in the fund, will not take place until the Broadband Data Collection (BDC) and new broadband FCC RDOF map are completely operational and can be utilized to determine Phase II eligibility.
The FCC found that existing broadband maps, and the data they were based on, were not granular enough or accurate enough to enable the FCC to effectively point funding to the areas in need.
In 2020 Congress passed the Broadband Data Act requiring the FCC to correct the RDOF maps. FCC Chairwoman, Jessica Rosenworcel, talked about this in her podcast interview with Marketplace Tech. While Main Street in a rural area may have great broadband service, homes in the hills or outside of town may not. Sampling-based on larger census blocks may not accurately portray service levels and the underlying need.
Current estimates are that the BDC will not see full implementation (and the Phase II auction opening up) until at least 2023. Once the BDC is fully implemented, the FCC’s broadband maps will be able to show house-by-house, location-by-location broadband availability, and levels that will support FCC efforts to ensure RDOF funding truly goes to areas in need.
Preparing for RDOF Auction Phase II: The Bidding Process Explained
A bidder submits a short form application and then participates in the FCC’s reverse auction. Once that auction is complete, a winning bidder then starts the qualification process for receiving RDOF funding support.
Here’s a breakdown of the process as it stands now:
- Winning bidder has two weeks to complete the first portion of FCC Form 683 to “Divide Winning Bids” among related entities.
- FCC verifies all entities identified in the “Divide Winning Bids” section are “permissible entities” and then opens up the “long form application” portion of Form 683 for the winning bidder to complete.
- Winning bidder has another two weeks to complete the second part of Form 683, the “long form application,” for the entity and related entities identified in the “Divide Winning Bids” section.
- After the long-form application is submitted, several other documents must also be submitted that support the application, all with strict deadlines:
- Detailed description of technology and system that will meet the Auction 904 (RDOF) public interest obligations – for each state with a winning bid (due 2 weeks after the long-form deadline)
- Documentation of applicant’s “high-cost ETC designation” and officer certification letter and audited financial statements (due 3 weeks later)
- FCC completes application review and issues a public notice stating, an applicant is “authorized to receive support” in a state.
- Applicant submits bankruptcy opinion letter and letter of credit (2 weeks).
- FCC approves the application and puts the company on its “authorized” list to receive funding.
As noted above, the FCC requires, “a detailed description of the technology and system that will be used to meet the Auction 904 public interest obligations, including a network diagram certified by a professional engineer meeting the relevant requirements.” For most bidders, an existing system is in place that is used to develop this detailed description. But many bidders have ad hoc systems that may or may not have the level of detail to support this response. Using an asset management platform for tracking infrastructure assets like Alden One helps to ensure an accurate and complete technology plan needed for the RDOF long-form response.
Get Support for Joint Use Asset Management
Building out an existing network can be challenging; it can become more so when evaluating government funding requirements and restrictions in order to both develop a winning bid strategy and to then implement the system under those budgetary conditions. To win the RDOF funding game you must both win the bid and then be able to deliver a profitable system based on the bid model. Knowing your development and operational costs can help you avoid either missing out on funding by leaving the bidding too early or committing to a build that cannot be achieved. Analyzing your joint use assets in the right-of-way, as well as infrastructure-related processes can improve system development (and RDOF bid) effectiveness.
Find out how Alden can help your business gain clarity and control through business process automation to be ready for the opportunity that RDOF brings, schedule a meeting today.