Starry abandons RDOF bids, pushing auction default tally above $500M

Fixed wireless broadband provider Starry pulled an about face this week. Just two months ago, CEO Chet Kanojia indicated it was excited to get started on Rural Digital Opportunity Fund (RDOF) projects after the Federal Communications Commission (FCC) finally approved its awards. Now, though, it seems the company has decided to skip out on its RDOF commitments altogether and it’s not clear why. GeoLinks and Cal.net also defaulted on winning RDOF bids.

Starry was one of the top ten bidders in the RDOF auction, bagging $268.9 million to cover 108,506 locations in nine states. GeoLinks wasn’t far behind, winning $234.9 million to cover 128,297 locations across three states, including $149 million for 92,678 locations in California. Cal.net received $29.2 million to cover 44,153 locations in California.

In a public notice issued Wednesday, the FCC said Starry “notified us that it planned to default on all its winning bids.”

Starry’s reason for defaulting is unclear given the FCC recently approved its long-form application, paving the way for it to collect the vast majority of its winnings. The company did not respond to a request for comment and the FCC did not provide a reason in its notice.

The company had previously factored seven months of RDOF support into its full year 2022 revenue guidance, raising questions about what this will mean for its outlook.

Asked to comment on what the RDOF move, MoffettNathanson analyst Craig Moffett told Fierce it could just be a matter of money. In a note to investors last month MoffettNathanson noted that Starry ended Q2 with $100 million in cash. With a burn rate of around $50 million per quarter, that puts it on track to run out of cash by the end of 2022.

“Until they solve their financing puzzle, they’ll need to focus all their capital on existing markets. The RDOF markets are a luxury they can’t afford right now,” Moffett told Fierce. “Fortunately, the penalties for withdrawing aren’t terribly onerous.”

The reason for GeoLinks’ and Cal.net’s defaults is more apparent. A footnote in the FCC’s release about the defaults indicates both GeoLinks and Cal.net failed to secure Eligible Telecommunications Carrier (ETC) designations from the California Public Utilities Commission (CPUC), effectively blocking them from receiving their RDOF winnings for the state. In Cal.net’s case, the FCC said it didn’t have jurisdiction to overrule the CPUC decision.

Cal.net confirmed to Fierce that the defaults in California represent all of its winning bids. In a statement, Cal.net Chief Strategy Officer Ken Garnett told Fierce it is “very disappointed in the decision of the FCC. We were prepared and eager to begin deploying service to the areas we won in the RDOF auction nearly two years ago. The decision, however, further delays the availability of next-generation broadband services to over 44,000 unserved California locations.”

Regardless of the reasons for them, the defaults could cost all three companies. The FCC’s rules specify that defaulters are subject to “a base forfeiture per violation of $3,000,” with “separate violations for each census block group assigned in a bid.”

These rules are not an idle threat. In July, the FCC fined 73 defaulters – including Charter Communications and LTD Broadband – a total of $4.3 million.

Defaults and rejections

As of December 2021, the FCC said a total of 82 companies had defaulted on 23,896 census blocks totaling $220.7 million worth of winning bids. An FCC representative told Fierce the default tally is now more than 10 times that figure, totaling 265,850 census blocks. If Starry, Cal.net and GeoLinks' defaults this week are added to the previous tally cited by the FCC, that means winners have now defaulted on winning bids totaling at least $667.8 million (the FCC did not immediately provide an updated monetary tally).

And that’s just defaults. The FCC rejected winning bids from LTD Broadband and Starlink totaling $2.18 billion, though Starlink has contested that decision.

Put it all together and that means that a rather substantial chunk of the $9.2 billion awarded at auction won’t end up in the hands of broadband providers.