The Tale of the Tape: RDOF vs. BEAD

Now that I got your attention, here’s the real deal!

For years, the Rural Digital Opportunity Fund (RDOF) has faced ongoing criticism, especially with the number of defaults. Now, the Broadband Equity, Access, and Deployment (BEAD) program is under fire for delays in releasing funds for fiber builds. So far, not a single location has been built with BEAD funding, which has become a political talking point as we approach an election year.

For all of these reasons, I thought it would be interesting to take a closer look at what’s happened with RDOF. My question is: “Despite potential flaws in the design of RDOF as a policy or program, how is it actually making an impact on the people in rural areas?”

I may not have all the data at my fingertips, but I do know that some reports on RDOF were submitted over a year ago, which might give us some insights into what we can expect moving forward.

Setting the Stage on BEAD

Before I dive in, let me be clear: comparing RDOF to BEAD isn’t exactly fair right now (hence the title and my bait-and-switch tactic). As I’ve written about extensively in the past, the BEAD program has to navigate a long process and move through critical steps before the funds reach the states. This process takes time, partly due to the way the Congressional legislation was structured.

By design, BEAD is moving at a slower pace. It aims to address many of the issues that RDOF ran into (which I’ll touch on shortly) while also giving states more decision-making power. This alone would take time, but the addition of various approval processes and policy priorities has slowed things down even further.

At this point, all we know is that the BEAD process is ongoing, and most experts predict money will start hitting in late 2025 or early 2026. So, for now, let’s shift our focus back to RDOF.

RDOF — A Quick Background and Context

Just to recap, the RDOF program came onto the scene on the heels of the 2018 Connect America Fund Phase II (CAF II) auction. Like CAF II, the RDOF auction was a reverse auction in which companies agreed to provide connectivity to specific areas in exchange for a set level of financial support over ten years. The idea was that multiple bidders could seek funding and compete for the same area, with the lowest-cost bidder willing to serve that area winning the support.

The auction was completed in 2020, right in the middle of the pandemic, and by the following year, we saw the first approvals for winning bidders to start their builds.

I’ll skip over the intricate details of the program to keep things simple. The main criticisms of RDOF focus on a couple of key points:

1. The auction was “open” to both new and existing providers, which, when combined with a reverse auction dynamic, drove support levels too low to sustain many areas.
2. Many of those new providers who were allowed to bid lacked the experience or technology to fulfill their commitments, but they were still allowed to participate.

The concern is that RDOF might end up as a policy failure, with many companies unable to complete their builds due to a lack of experience, capability, or adequate funding. There’s also the added challenge of what happens to households in areas where providers default but don’t receive BEAD funding. This has sparked a lot of debate and decision-making.

Rather than diving too deep into these criticisms here—many have already carried those arguments forward—I’m more interested in the real-world impacts.

As imperfect as RDOF likely is, is the program doing what it was intended to do and connecting?households and businesses in underserved areas?

The Canary in the Coalmine

To get a clearer picture, I started by looking at data from the Universal Service Administrative Company (USAC). Any providers receiving RDOF support are required to submit filings to USAC to report on their progress. It turns out there was data from June 2023. Although it’s quite a bit outdated, it’s nearly two years after most RDOF recipients received final approval to move forward with their builds, which gives us some insights.

We’re approaching RDOF’s first major build milestone around the end of this year, where recipients are required to deliver broadband to 40% of their designated locations by the end of the third calendar year. So, while this data is old, it still serves as a leading indicator. If companies are close to the 40% mark, we can assess how effective the program might be. On the other hand, if many providers are nowhere near the metric, we might argue the opposite.

(One important caveat—there have been reports of questionable data quality in the CAF programs, so these figures might not be completely reliable. But since companies are legally bound when submitting, I’m going to roll with it.)

At a high level, I was able to identify state-level filings, representing about 3.5 million locations and a total of $1.1 billion in support as of June 2023. Keep in mind that an entity can have multiple filings across different states—like Charter, which had 23 separate filings for the ~1 million locations it’s responsible for across various states.

Looking into the data, here’s what I found:

Nearly 70% of the filings indicate that they had started the build and had at least one location connected. Broadly, these entities represented a completion rate of about 32% (the number of reported locations served vs. their total obligation to serve). These companies have received ~$860M in funding to date and have reached 844K locations.

This indicates that a significant majority of firms seem on track to meet the first milestone. However, nearly 30% had not built a single location despite receiving around $259 million in funding. This might suggest future defaults, Section 214 Transfers of Control, or aggressive builds to come. It’s hard to say for sure, so this will need to be closely watched.

A closer look at larger providers revealed some interesting numbers:

• Charter: One of the largest RDOF recipients, Charter had completed about 27% of its build, reaching 266,000 locations.
• Windstream: 15,000 locations, around 7.6% complete.
• Frontier: 9,000 locations, about 7% built.
• Cox: As of the last report a year ago, Cox hadn’t built a single location.

But here’s what stood out to me the most:

The group that was largely meeting the build are smaller and more regional providers. This group, with around 270 filings, built 544,000 locations, representing a completion rate of 41%. This group had actually met their first milestone a YEAR ahead of schedule.

In the coming months, we’ll have more clarity as all the firms reach their build milestones.?

So, after all of that, what does it tell me, and what are the takeaways? First, it means we have to keep watching what happens.?

However, for all providers, this reinforces the importance of watching what’s happening with RDOF in your region. I often counsel clients that it’s important to know who has the RDOF obligations in your area. While this could mean competition, it might also present an opportunity, especially if they are struggling to make their build. You could take over their RDOF obligation, meet the builds, preserve the area for your own network, remove locations from BEAD, and ultimately, help your communities get the broadband they so desperately need.

Net net—as we approach the first milestone, we are likely to see more potential defaults and/or transfers. It may not be a bad time for you to evaluate those opportunities.

What are you hearing about RDOF completions and defaults as we reach the first milestone?

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