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Note: This is part six in an ongoing series. Be sure to check out the previous posts:

Part 1: Fiber to the Clubhouse: Pai Subsidizes Broadband for the Rich

Part 2: Broadband Boondoggle: Ajit Pai’s $886M Gift to Elon Musk

Part 3: Space-X Broadband: Coming to an Empty Traffic Island Near You

Part 4: Ajit Pai’s Broadband Legacy: Haste and Waste

Part 5: Plan Fail: How Pai Imperiled a Rural Town’s Fiber Network

Part 7: Why Elon Musk Is No Longer Getting $886M from the FCC

This past winter, Free Press sounded the alarm bell about former FCC Chairman Ajit Pai’s rushed $9.2-billion attempt to close the rural broadband-deployment gap. We documented how scarce Rural Digital Opportunity Fund (“RDOF”) awards were going to unproven companies like Elon Musk’s Starlink, ostensibly to deploy broadband in already-well-served urban areas, empty parking lots, lush resorts and empty highway medians.

These examples were alarming, but the waste wasn’t limited to bizarre and mistargeted expenditures in densely populated cities.

In our fifth post, we documented how Pai’s broken process also imperiled a number of nonprofit rural fiber networks built by municipalities or cooperatives. The trouble arose from the decision to fund internet giant Charter to deploy broadband to towns those smaller entrants already served. Our analysis specifically focused on the potential threat Pai’s blunder posed for Plainfield Broadband, which Free Press COO Kimberly Longey worked for years to establish (in her capacity as a town resident and leader, not on Free Press’ behalf).

A rushed FCC process threatened rural community-fiber networks

A quick recap: During the late 2010s, 21 towns in Western Massachusetts voted to build their own fiber networks. The decision stemmed from years of frustration with incumbents like Charter, Comcast and Verizon that had neglected to bring broadband to their rural communities, with federal and state policymakers making incomplete efforts to fill that gap.

The residents of these towns got to work planning, organizing, self-financing and overseeing the rapid deployment of these much-needed telecom networks. They also won some federal-support dollars of their own in the previous generation of the FCC’s broadband-deployment program.

Meanwhile, the Pai FCC put out a list of supposedly unserved areas that could qualify for its RDOF subsidies. This list included quite a bit of overlap with the Western Massachusetts towns that were in the midst of building their fiber networks. These towns didn’t report full coverage to the FCC because they followed the agency’s rules and didn’t report the areas that were under construction.

And then the FCC held the RDOF “reverse auction,” where the agency set an initial “reserve price” subsidy that companies bid down until there was a winner. For many of these supposedly unserved areas in Western Massachusetts, the winners of these scarce rural subsidies were cable giant Charter and Elon Musk’s upstart satellite-internet company Starlink. While Starlink won lots of random empty fields of grass where no one actually lives (a pattern seen all over the country), Charter won millions to build fiber in the towns that by then were either fully wired with municipal fiber or nearly at that point.

As we noted in our previous RDOF post:

“While in most areas it certainly makes sense to have as many providers as possible, this is not the case in areas that are by definition uneconomical for even one provider to serve without subsidies.

“Indeed, that’s the entire point of the FCC’s universal service ‘High Cost’ fund: to ensure telecommunications services are available at reasonable prices in areas where there’s no business case for a private provider to serve without some subsidy.

“It’s just bad policy for the FCC to subsidize multiple fiber networks in a single rural area. It’s especially terrible for the agency to fund a giant ISP like Charter to come in only after the residents of these tiny towns went out of pocket to build their own networks (the 20 other area municipalities also partnered with Westfield G&E and received CAF II awards).”

Free Press’ policy team brought these RDOF concerns to the new FCC leadership and numerous members of Congress who are working to close the digital divide. People on the ground in Massachusetts got to work speaking to their state officials.

Our concerns were both macro and micro: The other examples of wasteful spending we uncovered are a worrying indicator that the RDOF program as a whole was poorly designed and improperly implemented, threatening the FCC’s mission and mandate to close the deployment gap. But these residents in rural Western Massachusetts had taxed themselves to build their own networks when no ISP would — and Charter’s entry could have driven their towns into financial peril and destroy their nonprofit broadband services and investments.

Finally, some good news

Public policy tends to move at a snail’s pace, until it doesn’t.

Since we published our initial series of posts exposing the flaws of Pai’s RDOF, we’ve seen other critiques and analysis, congressional concern, and the expected defenses mounted by RDOF winners. But there was almost total public silence on the threat to the Western Massachusetts muni-fiber towns. Charter initially moved forward, filing paperwork with the state to be designated as an “Eligible Telecommunications Carrier” in these communities, a prerequisite to receiving FCC subsidies.

But on May 11, Charter filed a petition formally asking the FCC to let it out of these deployment obligations in all of Massachusetts, and in certain areas of Kentucky, Missouri, Virginia and Wisconsin.

In its request, Charter explains that it “learned soon after the auction from [The Mass. Broadband Administrator] and other parties that [the FCC’s list of eligible RDOF areas] did not reflect some areas where broadband already exists or is soon scheduled to be available.” Charter also noted it was relinquishing its RDOF support in “a small number of areas where Charter itself received [Mass. Broadband Administrator] support, and then inadvertently bid for and won in the RDOF auction.”

Let us be the first to applaud Charter for doing the right thing.

With its deep pockets and access to capital, it would have been easy enough for it to just plow ahead, and drive these municipal networks out of business. Maybe it recognized that approach would come with risk, as the residents of these towns have an incentive to resist any efforts to undercut their long-term investments. Whatever its motivation, Charter made the right choice, and the people of Western Mass and the towns in the other states — which were in a similar predicament, with their public broadband systems facing a private and FCC-funded overbuilding threat — can breathe a sigh of relief.

Lessons learned?

So while there’s nothing to gain from piling on Charter for what it did and did not do before the RDOF auction, this story should sound an even louder alarm for the FCC and Congress to fix RDOF and ensure future public rural-deployment funds are used to benefit the public.

Charter is the nation’s second-largest home-internet company, earning nearly $50 billion in revenues during 2020. If a company this experienced and well-financed couldn’t figure out before the auction that certain areas where it was making a massive commitment were already served — including some areas where taxpayers already pay Charter to serve — then what does that indicate for all the other RDOF winners?

Many of the top RDOF winners are not well-funded giant ISPs with decades of experience navigating regulatory waters. Most are extremely small companies with no proven track record of success. Indeed, we’re already seeing some of these RDOF winners asking out of their deployment commitments. Some RDOF winners want out because, like Charter, they bid on already-served areas. Others want out because they realized only after the auction that they bid too low and can’t turn a profit.

The FCC is still in the process of reviewing RDOF winners’ “long form” applications. The public has no window into this process, so we just have to hope that the new leadership will scrutinize each and every subsidy dollar before writing the final checks.

But while RDOF’s $9.2-billion price tag is large, it’s not nearly as massive as other state and federal rural subsidies that are already going out the door now, with more potentially coming in the Biden infrastructure bill. It’s critical that policymakers scrutinize RDOF so they don’t repeat its mistakes.

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