BEAD and RDOF will both fund unserved areas - what happens next?

The Infrastructure Investment and Jobs Act will put $42.45 billion into broadband buildout, to be distributed by the states. Less than a year earlier, the FCC’s high-cost Rural Digital Opportunity Fund committed $9 billion for rural buildout and subsidies in some of the same areas. In this post, I’ll explore which RDOF areas are likely to get funded, and what that means for the remaining unserved locations, and the amount of funding each state will have for each remaining unserved location.

There are 3.78 million residential housing units (2019) unserved by 25/3 broadband according to the December 2020 Form 477 data released by the FCC, the most recent available. Of those, 1.9 million were not eligible for RDOF (~50%), presumably because they were not deemed high-cost, or they were already eligible for other programs.

The other half (roughly) of the currently unserved were eligible for RDOF, and 99% of the eligible locations in RDOF were funded. Even before it was clear Congress would put additional 10s of billions into broadband, there were problems with RDOF — unrealistic claims about fixed wireless, big promises from unproved companies, funding for parking lots, airports, and Apple’s HQ, and other problems. In an attempt to clean up these problems, and with a backstop of additional coming funding, the FCC has, commendably, been using the final “long-form” authorization process to deny grants that could be problematic.

Of the 1.8 million RDOF funded housing units, 1 million of them have already been authorized by the FCC. These are mostly FTTP build outs from known and well-established operators, though a small amount is fixed wireless. There’s an additional 430,000 housing units where the winning bidder promised gigabit service (excluding LTD Broadband which has been mired in problems), which presumably have a chance of being authorized. The last 370,000 housing units were won by someone promising less than gigabit service, which in a lot of cases was SpaceX.

Switching to the vantage point of the states: If your unserved areas were funded by an established operator promising FTTP, it doesn’t seem logical to use IIJA money to fund those locations. Also, you can imagine the RDOF winner would not be happy about another subsidized competitor in a high-cost area. After all, their take-rates and revenue projections are based on being the only provider of true high-speed broadband.

IIJA is clear that a state has to fund its unserved areas before using funding on underserved areas. If a state wants to trust the RDOF winner to bring service to an unserved area, presumably NTIA will have a rule allowing that to count as coverage, unlocking the state to move on to underserved areas.

On the other end of the spectrum, presumably every state will use IIJA funding for areas SpaceX won in the auction. Whether the FCC can wiggle out of that commitment is a problem for the FCC, and the state will want to provide terrestrial service with a lower cost and less capacity uncertainties.

There’s also likely to be a grey area: it seems unlikely that the FCC will be able to withhold authorization from legitimate providers just because the provider isn’t planning gigabit service and Congress has since added a lot of money that wasn’t expected at the time. A state may get a grant proposal to bring FTTP service to an area that was won by fixed wireless and, understandably, want to fund it.

Let’s look at how this plays out at the state level. Kentucky, Louisiana, and Mississippi, for example, are in great shape. Their remaining unserved after subtracting blocks already approved by the FCC are 47%, 48%, and 53%, respectively. Since the funding levels won’t incorporate RDOF, they have the same amount of money for half the locations; or put another way, they may be able to reach further into the underserved since half their unserved will be brought service through RDOF.

By contrast, in some of the better connected states, the FCC has authorized virtually no RDOF areas. Here’s the spreadsheet.

It’s my impression we’re still in the goldilocks phase of this process—it’s pouring money for broadband. That’s a good thing. But there will be some bumps.