More RDOF Defaults on the Horizon?

There’s been much handwringing this year over the prospect of defaults in the Federal Communications Commission’s (FCC) Rural Digital Opportunity Fund (RDOF) program, but very little empirical analysis of the actual extent of default that has occurred to date or data-driven projections of what’s likely to occur in the future. It’s time to dig deeper to figure out what’s going on at the local level.

The Basic Facts

The FCC authorized 379 companies to receive $6 billion in RDOF support over a ten-year term, covering just under 3.5 million locations in 48 states and one territory. Companies receive funding to serve a specified number of locations in eligible census blocks, which were grouped together for purposes of auction bidding into eligible census block groups.

As of July 10th, only 16 out of 379 authorized recipients have defaulted, but in many instances, they have only defaulted on some (not all) of their authorized locations. While defaulting parties have specified the census block groups for which they are defaulting — and the FCC has promptly announced which corresponding census blocks are no longer subject to an enforceable commitment to deploy broadband, which opens up those areas for other funding programs — the FCC has not published a list showing the relevant number of locations associated with defaulted census blocks. Nor am I aware of any outside party that has undertaken a systematic attempt to figure this out.

Many of the defaulting companies aren’t volunteering those numbers, and it’s extra work to mash up the FCC’s spreadsheet of defaulted census blocks with other spreadsheets released before the auction showing the associated number of locations for individual census block groups. As a result, the general public doesn’t know how big (or small) the problem is.

For instance, there have been press articles about Charter’s RDOF defaults, but no mention of the actual number of defaulted locations. I’ve heard that Charter’s defaults in total are less than 23,000 locations nationwide — out of more than 1,000,000 locations for which it’s receiving RDOF funding. While certainly a legitimate concern for those specific areas — that’s barely 2.3% of Charter’s overall authorization.

Altice has filed notices with the FCC that it’s defaulting on census block groups in Arkansas, Kentucky, Louisiana, and West Virginia — but Altice only was authorized for barely 5,000 locations nationwide, a very small fraction of the overall RDOF program.

Co-Mo Comm, a subsidiary of an electric cooperative in Missouri that was authorized funding to serve 16,869 locations, has defaulted on five out of its 68 authorized census block groups. BARConnects has defaulted on 810 out of 1,962 authorized RDOF locations in Virginia. Northern Alabama Electric Cooperative has defaulted on 879 out of 4,376 authorized RDOF locations in Alabama.

In these cases of partial default, the FCC has stopped payments for the relevant number of defaulted locations while making clear that the companies in question otherwise remains subject to the FCC’s penalties for non-compliance.

Request for RDOF Amnesty

In February 2024, a coalition of 69 internet service providers, trade associations, state and local government officials, school districts and other organizations filed a letter with the FCC seeking amnesty for companies that choose to default on their RDOF or Connect America Fund deployment obligations, urging the FCC to act quickly so that companies could relinquish those areas and thereby make them eligible for state award in the $42.5 billion upcoming Broadband Equity Access and Deployment (BEAD) program. After seeking public comment, which yielded a robust record, the FCC denied that request in a Public Notice released on July 3rd. The FCC found that there was no demonstrated need for broad relief, and that its existing processes were adequate to address the situation.

In denying the request, the FCC noted that only 4% of Connect America Fund Phase II recipients were reporting not timely meeting their buildout milestones and that 71% of the RDOF carriers had reported locations as served a full year prior to the first deployment milestones for that program (December 31, 2024 for companies authorized in 2021, and December 31, 2025 for those authorized in 2022).

That means, however, that 29% of the RDOF carriers have not reported any deployment a year ahead of their required milestones.

Inquiring minds what to know: which companies have reported no deployment to date, and what are they doing?

FCC Inquiries Under the Radar

In comments I filed in response to the amnesty request on behalf of Irby Utilities, an end-to-end broadband solutions provider that works with electric cooperatives and municipalities to help achieve the vision of bringing sustainable, reliable internet to everyone in rural America, we suggested that the FCC should determine which RDOF recipients have failed to report any deployed locations to date and ask those companies to explain in detail what concrete steps they have taken to deploy a network since authorization.

I’m pleased to see that the FCC has been doing precisely that in recent months. FCC staff have been reaching out to RDOF companies, and those companies have been filing their response in the FCC’s public docket detailing the status of their projects. Let’s look at what they are saying:

· Conexon — authorized to receive support for 279,297 locations across ten states: Acknowledges it had not to date reported any locations for Mississippi (23,942 locations), Illinois (6,464 locations), and Arizona (14,574 locations), but asserts that considerable preparatory work has been completed or in progress in each of those states. Describes status of network design, make ready, and fiber construction for each of the three states.

· Cox Communications — authorized for 6,444 locations in nine states: Asserts it is on track to meet its obligation across the nine states. States it has deployed the necessary broadband facilities to 68% of the required number of locations to meet the 40% milestone and will complete the necessary deployment and back-office work to be able to market the RDOF-required service by the end of the year. Cox provided a supplemental attachment with a state-by-state breakdown of its progress with a request for confidential treatment.

· PGEC — authorized for 4,238 locations in Virginia: Explains it had erroneously used the wrong speed code when reporting deployment; the company did a bulk modification to use the correct code and now has certified deployment to 2,262 locations, representing over 53% of the total number of locations required.

· Miami-Cass REMC — authorized for 3,391 locations in Indiana: Construction actively in progress; provides a map showing locations that are about to go live and areas to be completed by Q4 2024.

· Net Ops — authorized for 1,596 locations in Texas: Asserts it had a shovel ready fiber design, but it has uncovered several geographic obstacles along with rights of way and easement issues that have made an all-fiber deployment impossible; now planning to deploy a hybrid fixed wireless network to meet its 40% obligation by December 31, 2024.

· Plains Internet — authorized for 243 locations in Wyoming: Asserts it has been searching for locations for a tower and anticipates installing a tower that will enable it to meet its 40% obligation by October.

· Pinpoint Communications — authorized for 32 locations in Nebraska: Asserts it has been working through permitting issues with the local power company, but that is now behind it; confident it will serve the initial 40% by the December 31, 2024.

· Coleman County Telephone Cooperative — authorized for 11 locations in Texas: Asserts that 7 locations are available for service.

As can be seen from this list, the companies that thus far have responded to FCC staff inquires are obligated to serve a very small fraction of the 3.5 million locations that were originally authorized. While it’s entirely possible that other companies have not yet responded to similar FCC staff inquiries — the public filings don’t suggest it’s time to pull the alarm bell quite yet.

Final Thoughts

To conclude, I do not mean to minimize or discount the fears of those who worry that communities will be left behind and shut out of BEAD — that’s a legitimate concern — but rather to summarize what we know today about the scope of the issue.

As state broadband offices undertake their pre-qualification processes for prospective BEAD applicants, they should look to past performance of RDOF applicants as one predictor of future performance in BEAD. Even though RDOF companies do not face any mandatory milestones until the end of 2024 at the earliest, and in many cases the end of 2025 — the fact that some companies have taken more time to show measurable progress on their RDOF projects should give some pause. Conversely, those that are ahead of schedule on RDOF have amply demonstrated that they can perform in BEAD.