The FCC’s Path to a U.S. Nationwide 5G Rollout Gets Lost in the Thick of Rural America

The era of Ajit Pai’s Federal Communications Commission chairmanship has come to an end, and with it, perhaps, the Blitzkrieg approach to regulatory engineering. Pai was determined to establish the foundation of a nationwide 5G rollout stratagem in his first term. The mission was clear – beat China while playing by free market rules, educate the public on the needs and benefits of 5G, and, most importantly, establish a basic broadband beachhead in rural America, where connectivity barely exists.

For such a complex challenge, the plan was strikingly simple – demolish regulatory hurdles, free up spectrum, and pay a bunch of people a lot of money to be happy about it. A second term, now extinguished by a change of hands in the White House, was supposed to yield the results and, hopefully, a few triumphs.

In some cases, Pai’s trailblazing effort created more challenges than it solved – especially in the commercial markets. Rural America remains the biggest obstacle to a nationwide connectivity infrastructure, and Pai’s inconsistent use and regard of satellites as a tool to clear more accessible paths to the underserved, combined with his sometimes overzealous approach to cultivating market competition, creates complications for the incoming chair (who will be working in the environment of the post-COVID economic strain). The FCC’s Rural Digital Opportunity Fund (RDOF) is a prime example.

In August 2019, the FCC announced its intent to establish the $20.4 billion RDOF designed to finance high speed fixed broadband service rollout projects in rural and remote communities in the United States.

Five months later, the commission created the RDOF’s framework – a familiar structure for Chairman Pai – representing two reverse auctions in two phases stretching out over a decade. The Phase I auction, which began in October 2020, allocated $16 billion for service providers to connect more than six million previously unserved homes and businesses with voice and broadband services that have download speeds of at least 25 megabits per second.

“The RDOF prioritizes higher network speeds and lower latency, so that those benefitting from these networks will be able to use future as well as present Internet applications,” the FCC wrote in its guidelines.

SpaceX, Viasat, and Hughes were the three major satellite companies qualified to bid for Phase I funding. SpaceX received $885 million – the fourth highest of all bidders – for its Starlink Low-Earth Orbit (LEO) constellation. Hughes received about $1.3 million to connect 3,678 sites in Rhode Island. Viasat did not receive any funding in the Phase I round, but its bids were carried forward to Phase II, which includes $4.4 billion in funding to cover remote communities that are partially served, as well as locations not funded in Phase I.

RDOF funding does come with a few strings attached. Commercial providers must offer at least one voice and one broadband service meeting the FCC’s service requirements to all locations within the awarded area. After receiving RDOF funds, the provider must connect 40 percent of required customers within three years, and an additional 20 percent of customers by the end of the fifth year. The FCC will then revise location totals by the end of the sixth year. The exact deployment schedule within this timeframe, however, is determined by the carriers themselves, not the FCC.

After emerging as the satellite industry’s biggest RDOF winner, SpaceX will now be required to provide broadband service to 642,925 locations spread throughout 35 U.S. states (excluding Alaska, Iowa, Missouri, Rhode Island, North Dakota, South Dakota, Kansas, Texas, Oklahoma, Nebraska, Ohio, Wisconsin, Delaware, Arizona, and Indiana). The application was filed in the “above baseline, low latency” service tier, which means that SpaceX will be required to provide a broadband service at speeds of at least 100 Mbps downstream and 20 Mbps upstream. The Low Latency tier requires network round trip latency must be at or below 100 milliseconds.

According to a review of the Phase I auction conducted by the Benton Institute for Broadband & Society, this special service tier designation gave SpaceX a considerable advantage in the bidding process. “The Geostationary satellite providers Hughes and Viasat had no chance of competing against SpaceX,” writes Ziggy Rivkin-Fish, an analyst with the Benton Institute. “Those satellite providers have a large advantage in that their networks are already built. They do not have to build expensive infrastructure to extend service. The FCC altered some of the rules and weights to ensure there would not be a ‘race to the bottom.’ The high orbit satellite providers would still be able to pick up areas that nobody else would bid on. But now, SpaceX would be able to claim a higher speed tier and a lower latency. The weight differential was suddenly very large, but SpaceX did not have to add more satellites or ground stations than the ones it had already planned to build.”

Though SpaceX’s reported broadband service performance is falling within the RDOF’s target range, Rivkin-Fish and other analysts still wonder about the economics of deploying the network. Regardless of its success in the RDOF, “SpaceX will face competition from other Low Earth Orbit satellite providers that are currently deploying, creating uncertainties about the ability of either SpaceX or its competitors to generate sufficient revenue to justify the initial and ongoing investments required. SpaceX, in particular, is not a ‘build-it-once-and-be-done proposition’,” writes Rivkin-Fish. “If SpaceX is not able to generate sufficient revenue, or if its satellites or other infrastructure fail at faster rates than anticipated, the result might be a descaling of investments, leading to connectivity and capacity issues.”

Analysts joined certain policy makers in questioning the accuracy of Census guidance to determine whether or not the FCC and its investments are hitting their RDOF marks. Democratic Party politicians in the regulatory world have signaled intent to revisit these metrics with additional scrutiny. The change in political leadership will also come with a change to the national spectrum allocation strategy. Democrats will be much more hands-on and less reliant on the natural competitive order of the markets, aiming for what they consider to be a less chaotic, more consistent management approach.

The days of taking any shot at 5G spectrum clearance may also be over. This kind of policy shift will be abrupt. As recently as the end of December 2020, just as the FCC was announcing its Phase I RDOF winners, the commission made a rather curious announcement that it was considering whether to open up the 12 gigahertz band, primarily used for satellite video and broadband services, as well as Multichannel Video Distribution and Data Service (MVDDS), for wireless use.

This came after a group called the MVDDS 5G Coalition, which includes 12 gigahertz license holders such as Dish Network, Cass Cable TV and Go Long Wireless, petitioned the FCC to allow more flexible use of the band for terrestrial and mobile services potentially, in 5G. While Pai’s commission made no commitments or conclusions about whether or not to free the spectrum, it put them at odds with the company they just heavily invested in to provide rural broadband – SpaceX.

SpaceX came out swinging against the proposal. In a filing to the FCC just days before the new year, SpaceX said opening up the band would jeopardize its ability to meet the requirements of the RDOF. "Claims that this band is suitable for 5G are misguided and inconsistent with the facts,” SpaceX wrote. “Instead, this band has become one of the most dynamic successes for providing broadband to consumers via next-generation satellite services, including those rural and hard-to-serve customers in urban broadband deserts who have gone unserved for too long.”

If the past turns out to be an accurate prediction, the incoming chair of the Democratic Party (at press time, still unannounced), may change course dramatically on the use of auctions and spectrum clearing, as well as commercial spectrum payouts, to accelerate 5G rollout. Recall that the FCC’s Democratic minority Commissioners Jessica Rosenworcel and Geoffrey Starks voiced rather direct opposition to C-band spectrum payouts to satellite operators a year ago.

If the focus of the new chair shifts away from the longer-term 5G roll out to a more immediate-term rural broadband strategy (which may go hand-in-hand with a COVID-19 recovery plan), the FCC may diversify its investments in satellite connectivity. In addition to SpaceX, Telesat, Viasat, and Amazon all have planned LEO constellations. Amazon’s Project Kuiper has the deepest pockets and biggest ambitions — a $10 billion network of 3,236 LEO satellites that deliver satellite-based broadband and backhaul that would allow wireless carriers to extend LTE and 5G services to remote regions.

Regardless, the depth of the economic fallout from COVID-19 will determine how much time the incoming FCC leadership will have to build on Pai’s successes and recover from his missteps. VS