Ajit Pai apparently mismanaged $9 billion fund—new FCC boss starts “cleanup”

Money falling into a grate on the side of a street.

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The Federal Communications Commission wants SpaceX to give up a portion of the $885.51 million in broadband funding it was awarded in a reverse auction in December 2020.

SpaceX’s Starlink satellite broadband division was one of the biggest winners in the FCC’s Rural Digital Opportunity Fund (RDOF) grants announced in Ajit Pai’s last full month as FCC chairman. Overall, Pai’s FCC awarded $9.2 billion over 10 years ($920 million per year) to 180 bidders nationwide, with SpaceX slated to get $885.51 million over 10 years to serve homes and businesses in parts of 35 states.

Pai apparently mismanaged the auction, as an announcement yesterday from Acting Chairwoman Jessica Rosenworcel’s office said the FCC has to “clean up issues with the program’s design originating from its adoption in 2020.” The FCC cited “complaints that the program was poised to fund broadband to parking lots and well-served urban areas.” The FCC suggested that SpaceX give up its funding in about 6 percent of the census blocks where it’s slated to get money. Other ISPs are being asked to give up smaller portions of their funding.

Pai sent money to wrong areas

The rules that Pai set for the first RDOF auction required funding to go only to census blocks where no providers offer speeds of 25Mbps down and 3Mbps up. A planned Phase 2 auction would target such areas, but the first auction was meant only for places that are completely unserved.

Rosenworcel’s office sent letters to dozens of winning bidders yesterday, suggesting that they voluntarily give up a portion of their funding. The letter to SpaceX stands out for the sheer number of census blocks—about 6,500 in 34 states—where the FCC is challenging SpaceX’s funding. Those 6,500 are among about 113,900 census blocks where SpaceX tentatively won FCC grants.

The letters to SpaceX and other ISPs pointed to concerns “that certain areas included in the Rural Digital Opportunity Fund auction are already served by one or more service providers that offer 25/3Mbps broadband service or otherwise raise significant concerns about wasteful spending, such as parking lots and international airports.”

The letters continued:

It is your responsibility to conduct due diligence to ensure that you can meet the Rural Digital Opportunity Fund public interest obligations. Attached to this letter is a list of census blocks covered by winning bids associated with your long-form application and where such concerns have been raised. We recommend that you assess whether existing service in these areas will affect your ability to meet all program requirements and deployment milestones.

If you determine that you will no longer pursue support for any of your winning bids, promptly send an email to Auction904@fcc.gov identifying the specific census block groups with a brief explanation of your decision to default on your bid. Defaults will be announced by public notice.

We contacted SpaceX about the FCC letter yesterday and will update this article if we get a response.

The letters say the FCC will consider waiving “penalties normally associated with defaults” in cases where “defaulting on these bids will serve the public interest by… targeting scarce Universal Service funds to where they are needed most.” The FCC could take action to block funding and penalize ISPs that don’t voluntarily withdraw their bids.

Census-block screwups

Even before Pai conducted the auction, Rosenworcel urged him to delay awarding grants to ISPs until the commission completes a plan to create a more accurate map showing exactly where broadband has and hasn’t been deployed. The FCC’s current data simply measures how many ISPs are in each census block without showing whether any specific address has service. The Pai-led FCC auction apparently didn’t even get things right at the census-block level, as the FCC now says that a significant amount of the funding was awarded to the wrong areas.

Overall, the FCC sent 197 letters to ISPs that need to evaluate whether to keep pursuing all of their winning bids. Some ISPs received a bunch of letters for different operating divisions. For example, Charter got letters in nearly 20 states, listing a total of about 300 challenged census blocks. Charter had won even more funding than SpaceX—$1.22 billion to serve 1.06 million homes and businesses in 24 states—so it isn’t being asked to give up a significant percentage. CenturyLink, Frontier, Cox, and Windstream all received letters in several states.

The FCC said it is ready to authorize the release of $311 million of the $9.2 billion in pending funding, saying this will let 48 ISPs “bring 1Gbps broadband speeds to nearly 200,000 homes and businesses over the next 10 years.” Those ISPs are listed here.

The RDOF and other universal service programs run by the FCC are paid for by Americans through fees imposed on phone bills.

Starlink in parking lots

Research by consumer-advocacy group Free Press was one of the catalysts that led to the FCC’s auction cleanup effort. Free Press found that “nearly 13 percent of the money awarded to Starlink—$111 million—is to provide service in urban areas,” as we wrote in December. That included “a large number of very urban areas that the FCC’s broken system deemed eligible for awards,” such as locations at or adjacent to major airports in Atlanta, Chicago, Denver, New York City, Seattle, Las Vegas, Newark, Miami, Boston, Minneapolis-Saint Paul, Fort Lauderdale-Hollywood, Detroit, and Philadelphia.

As Free Press noted, SpaceX also won funding in places such as “the Jersey City Target store”; census blocks “with luxury hotels” in Chicago; “empty parking lots, grassy fields and highway medians” near the District of Columbia; a “parking garage in downtown Miami Beach, two blocks from the beach, surrounded on all sides by multiple companies offering gigabit service”; a street in San Francisco “that borders the southern edge of Golden Gate Park,” and “a parking lot outside the Pentagon.” Free Press wrote a six-part series titled, “Fiber to the Clubhouse: Pai Subsidizes Broadband for the Rich.”

Pai was “in a rush to take credit”

Free Press Research Director Derek Turner praised the FCC’s action yesterday. “In a rush to take credit for this program before his departure, Ajit Pai ignored early criticism and rapidly awarded money to the likes of Elon Musk for building broadband bridges to nobody,” Turner said. “Pai wanted to put a pretty bow on a bad process. Under Rosenworcel, the FCC seems determined to do the due diligence that Pai skipped to ensure that federal money actually connects real people—as opposed to traffic medians—to affordable services.”

Rosenworcel has been leading the FCC without a Democratic majority as President Joe Biden still hasn’t nominated another commissioner to break the 2-2 deadlock between Democrats and Republicans.

Yesterday’s FCC announcement pleased a group of rural broadband providers that objected to other ISPs’ funding awards. The group calls itself the Ensuring RDOF Integrity Coalition and had previously criticized many of the RDOF funding awards in an FCC filing. “These remedial actions by the FCC only begin to reveal the underlying problems of several RDOF applications,” the group’s counsel, Bob Silverman, said in a press release yesterday. In its earlier filing, the group urged the FCC to “ensure that funding does not go to unserviceable locations such as parking lots, playgrounds, shrubbery, rusted-out propane tanks and the like.”

Republican and Democratic members of Congress also raised concerns about funding potentially going to ISPs that can’t deliver on their promises.

Starlink deployment shouldn’t suffer

Losing a portion of the FCC funding shouldn’t have much effect on the Starlink network buildout. Unlike wired ISPs, Starlink will be able to offer service just about anywhere from the thousands of low-Earth-orbit satellites the company is launching. The primary limit for Starlink is the number of customers it can serve in each geographic region, but that’s due to network-capacity constraints rather than funding problems. Starlink’s technology is best-suited for sparsely populated areas.

There probably won’t be any significant impact on future Starlink customers, either. SpaceX didn’t promise to charge lower prices in FCC-funded areas. All it has to do to meet the requirement is offer service at specified speeds in the funded census blocks, which it would likely do with or without FCC funding. SpaceX CEO Elon Musk has promised global Starlink coverage and said the company is on track to invest $5 billion to $10 billion in Starlink before it reaches a “fully positive cash flow.”

Fixed-wireless ISP in trouble at FCC

The FCC issued an order blocking the funding that fixed-wireless provider LTD Broadband won in three states. The FCC is also blocking funding for a company in Florida.

The FCC said it “will not tolerate any provider participating in the program that is not serious about providing broadband service or has not made appropriate efforts to secure state approvals,” and thus “rejected requests from AB Indiana in Florida and LTD Broadband in California, Oklahoma, and Kansas to waive program deadlines, in light of their failure to act in a timely way to seek state certification.” The FCC said it will soon issue a public notice “finding AB Indiana in default on its bids in Florida and LTD in default on its bids in California, Kansas and Oklahoma.”

LTD had been awarded $1.32 billion to serve 528,088 locations in 15 states. The company also received a letter challenging its funding in over 3,100 census blocks. LTD CEO Corey Hauer declined to comment when contacted by Ars.

Disclosure: The Advance/Newhouse Partnership, which owns 13 percent of Charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.

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