The Rural Digital Opportunity Fund: A Proposal to Include Local Community Support in the RDOF Auction

Chairman Pai’s Rural Digital Opportunity Fund (RDOF) is the most significant rural infrastructure initiative of our time.

Chairman Pai’s Rural Digital Opportunity Fund (RDOF) is the most significant rural infrastructure initiative of our time. At over $20 billion, there is sufficient funding in the RDOF to support the most advanced fiber optic services to every rural home in the nation. The program has the potential to become the Rural Electrification Act of our generation, especially if it fosters the same spirit of local initiative, local ownership and local control.

Rural electrification was not a top-down, government driven program. It was a bottoms-up, community by community, home by home, pole by pole construction program that spanned many years and has sustained rural communities for the past eight decades.  

Imagine if rural communities in high-cost areas were given a say in how broadband funds would be spent. When I was at the FCC, that was the pitch I made to the former FCC Chairman during the debates about the structure of the Connect America Fund.

As I put it then, “What would communities prefer, and what is better for the long-term health of those communities? Fiber networks, owned and operated by local membership cooperatives, or copper, satellite and fixed wireless networks owned by regional and national carriers.”

“The answer is obvious,” came the rejoinder from Chairman Wheeler, “But you Republicans love corporate welfare, and I’m not going to fight the Republicans on Capitol Hill who want corporate welfare for the telephone industry.  I have other priorities and I’m not going to take this on.”

Chairman Wheeler’s largest rural initiative was to gift $10 billion of the public’s money to large telephone companies for 10/1 Mbps speeds – service that was inadequate before the money was even spent.  Subsequently, under Chairman Pai, the CAF II auction revealed how competitive bidding improved upon the universal service programs of the past: for a fraction of the funding per location, 100 Mbps and Gigabit-capable networks are being built.

The CAF II auction also revealed important community preferences. The vast majority of member-owned organizations (e.g., rural electric and telephone cooperatives) bid at the Gigabit tier. Similarly, the vast majority of Gigabit tier funds in the CAF II auction were won by community organizations building fiber-to-the-home networks. Just as important, these networks are being built with less than half the federal funding paid out by the prior Administration.

The proposed RDOF auction will adhere closely to the CAF II auction, and adds one new component – consumer choice.

Should a winning bidder fail to attract consumers, the Commission will withhold funds under a formula that uses the Commission’s cost model assumption that a universal service provider should be able to gain a 70% market share.  It’s a prudent, fiscally responsible approach. Yet, as proposed, the Commission will still distribute significant universal service funding to companies that attract few or no customers. Under the Commission’s proposal, a winning bidder in the RDOF auction that attracts less than 1% of the households and businesses would still receive over 50% of its RDOF funding.

It is possible that this new aspect of the auction will affect bidding behavior, but it still will not give rural communities a vote ex ante in the types of services to be deployed.

I believe an additional approach should be considered, one that would not disturb the current FCC proposal, would not affect the budget, and would give rural communities the opportunity to express their preferences at the outset.  Specifically:

Prior to the auction, qualified participants would demonstrate consumer interest by submitting a list of households and small businesses (i.e., locations eligible for RDOF subsidies) by census block that have signed an expression of interest or support in subscribing to the bidder’s service. 
During the auction, bidders would have the opportunity to submit bids, including package bids comprised of census blocks or census block groups, which would constitute a local consumer preference area.
If the number of local supporters obtained by an RDOF auction bidder equal more than 50% of the eligible locations in an area then, at the clearing round, that bidder would automatically become the winning bidder and receive the clearing round price. 
In the event of overlapping, competing bids where multiple carriers obtain enough support in an area, the bidder with the higher percentage of support in any given census block or census block group would win that area and receive the clearing round price. 
The RUS ReConnect program included a small version of this approach, whereby applicants solicited expressions of interest from farms and small businesses to gain points in the scoring process.

I anticipate that opposition to such a proposal will involve the mechanics and administrative matters. I’ve been involved in FCC auctions for over 25 years. I’m confident that the FCC staff, as clever and experienced in auctions as they are, would find a way. I am an unlikely and unconventional populist. Born in Washington, DC, raised in the northeast, educated at Ivy League schools and employed in senior positions in the federal government and the telecommunications industry, I am no one’s idea of an everyman. Yet, when I was in the government, I believed my responsibility was to serve the public. And the electric cooperatives I serve currently are organizations that are pure expressions of local community. I have seen what works in rural communities and why. Cooperatives work because they reflect the decisions of the members they serve.

We’ve been spending the public’s money on rural broadband for a long time with mixed results. Maybe it’s time to give the public a direct say in their future.