RDOF Defaults, Though Tiny, Are Growing

A small, but steady stream of defaults is hitting the rural deployment opportunity fund program, with many providers citing inflation as the cause, program watchers and participants tell us. A small burst of RDOF defaults occurred in recent days, including Cable One telling the FCC it's dropping 902 census block group projects in Idaho and Missouri (see 2410180033) and Mercury Broadband defaulting in 129 census block groups across four states. Since Sept. 1, Pinpoint Communications announced defaults of three census block groups, RiverStreet Communications had six and Lumen nine. It's unclear whether RDOF default locations will receive connectivity elsewhere, such as with NTIA's broadband equity, access and deployment (BEAD) program.

Summit Ridge Group's Armand Musey told us rip and replace projects could see similar problems with inflation, though in some cases the woes RDOF providers are feeling might be due more to misjudging costs from the outset than to inflation. He said future auctions for government subsidies might need to think more about bidders' financial stability.

The FCC and telecom consultant Carol Mattey told us the defaults, in the context of the RDOF program overall, are small. The RDOF program's rate of default is around 2% of funded locations, the FCC told us. As of the end of 2023, close to 25% of the 3.5 million authorized locations were receiving RDOF-supported service, it added.

Mattey said the defaults generally are in two camps: smaller operators "who might not have appreciated what they were getting themselves into," and cable operators who could be rationalizing their footprints and deciding, in retrospect, not to participate. The "continuing trickle" of defaults won't stop, nor will they increase in frequency and size, however.

For states that have finished their challenge process to finalize the list of BEAD-eligible locations, those defaulted RDOF locations can't be added, Mattey said. States that haven't started their challenge process could put defaulting locations on the BEAD-eligible map, however.

Beyond BEAD, other federal programs or state broadband grant programs could offer connectivity for RDOF default locations, Mattey said.

The FCC said it's working with state broadband offices and other federal agencies, ensuring they know about the RDOF default locations. In addition, the FCC said it's making agencies aware that defaulted locations have options with other carriers or deployment programs. The RDOF default process includes ensuring that the carrier notifies state broadband offices about not deploying infrastructure to the defaulted locations, the FCC said. Moreover, the FCC notifies NTIA to start a similar dialogue about the locations. It can discuss with the relevant state broadband office and the carrier whether there's another entity that may be interested in serving the area and assuming the defaulting carrier’s RDOF obligations. If no one does, the FCC said, it notifies NTIA, Treasury, and Agriculture's Rural Utility Service. This gives the defaulted area priority consideration in other federal funding programs.

Idaho Office of Broadband Director Ramon Hobdey-Sanchez, in an email, said the agency is working with NTIA to try to ensure RDOF-defaulted locations are eligible for BEAD funding, "but there are no guarantees."

"At this point, with the BEAD grant program finally reaching the grant states, [RDOF default locations] are pretty much out of luck," with no other grants on the horizon, CCG Consulting's Doug Dawson wrote in an email. He and Mattey said there could be post-BEAD demand for grant funding to reach locations the BEAD process missed. "But," said Dawson, "who knows how much attention that will ever get?"

Both Cable One and Mercury Broadband noted inflationary pressures. "The costs associated with building these projects have increased to unprecedented levels, making it economically unfeasible for many providers to proceed as originally planned," a Cable One spokeswoman emailed. "As we focus on future growth, our commitment remains unchanged: we will continue to provide reliable internet access to unserved and underserved communities, regardless of external economic support."

Lumen also pointed to "dramatically" rising deployment costs since it made bids, as well as the number of deployment locations notably different from initial published auction numbers.

Similarly, Mercury Broadband said deployment costs "have increased dramatically since" it "made its bids in the RDOF reverse auction." The company noted this issue in its docket 19-126 default letters for projects in Illinois, Indiana, Missouri and Michigan. It said that while it "has made tremendous strides to close the digital divide since its founding in eastern Kansas seventeen years ago, including through the RDOF program, factors outside of the company’s control, including rising costs and competitive encroachment, have rendered deployment to many of these RDOF [census block groups] economically unviable and ultimately unachievable."

Mercury said it's "in close coordination with NTIA and the relevant state broadband offices to ensure that these locations are able to receive alternative support for high-speed broadband deployment."