FCC: Let’s Try Another Approach

By Doug Dawson, Jan 5, 2021 | POTs and PANs original article here.

Anybody reading this blog already knows that I am not a fan of the recent RDOF grant program. If the FCC doesn’t figure out a way in the next few months to cancel the worse of the grant awards, when we look back six years from now we’ll find that half or more of the funding was wasted. The FCC has wasted money before, like with the $11 billion from the CAF II for big telcos that was nearly all wasted – but solving the rural digital divide has become too important to keep throwing away grant money.

The RDOF grant process was doomed before it ever got started. The amount of grant award in each Census block is based upon a massively flawed FCC cost model that pretends to understand the difference in broadband construction costs around the country. This unfortunately means that the FCC offered far too much grant funding in some places, and not enough in others. This is a nuance of the grant that everybody seemed to have missed – that the FCC pre-determined the amount of grant available for each Census block. I know areas where the FCC was offering 20% more than the cost of building a fiber network, and others where it wasn’t offering half of what is needed. The FCC’s faulty cost model does not accurately reflect the cost of getting onto bad poles or of encountering rock when burying fiber. We saw folks offering to build fiber in places where the FCC awards were overly generous, but no landline ISPs offering to build broadband where the awards were too low. People living in the Census blocks where the FCC awards were too small were doomed from the start to not see a decent broadband solution.

The FCC really blew it when it came to vetting the financial wherewithal of applicants. They allowed small companies with limited experience and weak balance sheets to claim huge amounts of funding, with the largest winning more than $1 billion in grant funding. This was not hard to foresee, and companies should have been given bidding limits according to their financial capability. Tackling this after the auction is over is a real mess.

The FCC also didn’t put any common sense stops in place on the bidding. There are a huge number of Census blocks where the grant was finally awarded at less than 5% of what the FCC offered – many as low as 1%. Some of these recipients say they are going to build fiber in areas where the construction cost per passing to build fiber is more than $15,000. Does anybody really believe that a grant recipient will build fiber if they accepted only a few hundred dollars of grant per passing in these high cost places?

Then there were problems due to the FCC not taking the time to do its homework. I’ve seen maps showing grant awards to places like large airports, giant parking lots, malls, and other assorted empty Census blocks. The FCC couldn’t afford to have somebody in the last year spend some time looking at the grant areas on Google Earth? Such areas should never have been in the grant to start with and demonstrate incompetence at the FCC. Hopefully, these grant awards will be canceled.

The RDOF grant also allowed grants to be awarded for technologies that should never have been allowed in the grants. In another giveaway to big telcos there were awards made to enhance DSL – does this FCC really think there is any life left in rural copper? Technology as slow as 25 Mbps was allowed in the auction – all due to the FCC not having the backbone to define broadband at a more reasonable and higher speed. Perhaps the biggest dollar problem was letting bidders claim faster technology speeds than are conceivably possible – such as bidders that claimed the ability to build gigabit fixed wireless. All the WISPs I know are irate about this since they were outbid in the auction by bidders that lied about technical capabilities. Such grant applications must be nixed in the long-form process or the FCC will have allowed fraud into the grant process. The headscratcher that has generated a hundred articles is why the FCC is allowing grants for satellite broadband – a technology that is going to reach all of these places anyway, without the grant money.

Maybe the biggest problem with the RDOF process is that the penalties for cheating are too small. This was the rule that doomed CAF II. The big telcos did the math on CAF II and figured they could do absolutely nothing and still keep a significant percentage of the grant dollars. The penalty for taking RDOF money and doing nothing ought to require repayment of more than 100% of the grant – with a repayment that cannot be hidden behind a bankruptcy.

It’s hard to know which of these problems was the worst, and they all contributed to the disaster we see at the end of the grant. This FCC has loudly complained about fraud and waste in the universal service fund. But it turns out the biggest waster of the funds is the FCC itself. It tossed away $11 billion in the CAF II awards and is on the path to toss away more with the RDOF awards.

The FCC has an opportunity to clear up some of these problems through the long-form approval process. But if the FCC awards the grants as auctioned, then the FCC will have completely botched the only two giant-dollar broadband grant programs it has administered – the original $11 billion CAF II and now the $16 billion RDOF. Even if the FCC cleans up some of the worst problems, the agency has shown us that it should have no role in deciding who gets to build broadband networks.

There is a better and easier approach to successfully administering broadband grants sitting openly in front of us. Congress gave block grants to the states for CARES funding that included money for broadband. This money came with some odd strings and rules that kept changing, but from what I can see, the states did a decent job of administering the funds. The biggest hurdle with the CAREs money was that states had to spend the money too quickly and were faced with having to repay any money that was later deemed to not meet the intentions of the CARES Act. But even with the CARES restrictions, each state carefully deliberated and debated the best way to use the money.

The most effective way to award large amounts of grants like the RDOF is through block grants that would allow each state to determine how to use the money. To be effective, block grants shouldn’t be saddled with any stupid rules or restrictions – but I think it’s clear that states know local broadband needs far better than the FCC. For example, one of the big problems with RDOF is the FCC determining the Census blocks where the grants were to be awarded based upon its admittedly crappy broadband mapping. With block grants, states should be free to pick where funds are allocated.

Block grants would have avoided most of the mistakes made by the FCC with RDOF. Consider the state of Minnesota as an example. The state already has a successful grant program that could have been expanded to deal with a large block grant. Minnesota uses its own broadband map and would have ignored the FCC mapping. Minnesota already has a minimum speed requirement for grant recipients of 100 Mbps download and would not have considered slower technologies. Minnesota would likely not have considered satellite broadband as an acceptable solution. In the RDOF, a large portion of the money in Minnesota was awarded to WISP that says it will build fiber. The Minnesota grant program would have likely rejected this company for lack of technical experience and financial wherewithal – but that would be a local decision for the state to make.

Not every state has its act together as well as Minnesota and perhaps the FCC rules would have to create a few guidelines. For example, the current state grants in Washington are only awarded as a combination of a grant and a loan. The federal money should be awarded as pure grants that shouldn’t be complicated or encumbered with state loans.

States certainly wouldn’t be perfect with block grants and some states would make boneheaded decisions. As an example, a few years ago a large state grant program was created in California, and before the money was awarded, AT&T and Frontier lobbyists used political influence to make sure most of the money went to them. However, there is currently huge public pressure to solve broadband gaps, and any politician who bungles state grants would be under a microscope and held accountable. I like that accountability. There is zero accountability when the FCC botches a grant. We never saw any heads roll for the disaster of the CAF II awards when an $11 billion screw-up should have been front-page news. Giving the money to the states bring accountability and transparency that we don’t have at the federal level.

The FCC is a regulatory body and should never have tackled figuring out how to award $16 billion in grants. It was obvious from the start that the FCC had bitten off more than they could chew – but considering the time that the FCC had to get ready for this, I was surprised at the utter failure of the reverse auction process. The FCC could have instead announced state block grants and gotten positive acclaim from coast to coast – that would have been a legacy that Ajit Pai could have been proud of – instead, he’ll be known as the guy who botched the RDOF grants.