5 ms·

Internet providers that won FCC grants try to escape broadband commitments

137 points by specto 3y ago

pessimizer 3y ago
That's what they're economically motivated to do, and it will work. The main job of your insurance companies is to find a way to refuse your claim, and the main job of the recipients of government grants is to reduce deliverables and compliance monitoring. ----- > Telecom industry consultant Doug Dawson wrote a blog post calling the RDOF process "badly flawed since the beginning. Some auction winners bid down prices a lot lower than expected. The areas that were available in many places are scattered and don't create a reasonable footprint for building a broadband solution." > "I have no doubt that many RDOF winners are now looking at a broken financial model for fulfilling their promise. They are stuck with a terrible dilemma—build the promised networks and have a losing business or pay a substantial penalty to withdraw from RDOF," Dawson wrote. https://en.wikipedia.org/wiki/Winner's_curse https://en.wikipedia.org/wiki/Winner's_curse
- polygamous_bat 3y ago
  Invisible hand of the market in action, isn't that wonderful.
  - lotsofpulp 3y ago
    Invisible hand only works if there are many buyers and many sellers, and if market participants are subject to the costs of externalities.
    - psd1 3y ago
      ...and laws are enforced
  - Spooky23 3y ago
    More like the visible middle finger of a cartel.
- Sniffnoy 3y ago
  Hm, I guess a second-price auction would only help somewhat with that, huh?
  - wmf 3y ago
    Yeah, if multiple companies are underbidding the winner will still not have enough money to build a network.
- linsomniac 3y ago
  I had looked at the GIS maps of some of these service areas around me, and it looked like the submission of these bids was from an automated system, that no human had reviewed. There were all sorts of little carve outs by some company on the east coast. I seem to recall some were in parks or wildlife areas inside the city, some were tiny 2 or 3 house areas. Not surprised they are concerned about the costs of serving some of these areas, serving a couple houses in the middle of town is going to be astronomical.
  - inemesitaffia 3y ago
    Likely SpaceX
    - linsomniac 3y ago
      No, there were some swaths of SpaceX, but this was another company I had never heard of, I want to say the company was listed as being in Virginia, but I don't remember any details.
      - inemesitaffia 3y ago
        Maybe LTD broadband? I know SpaceX bid for almost every square inch of the US
- dghlsakjg 3y ago
  Nitpick: The main job of the insurance company is to make money with the float, not to make money by denying claims. The float is premiums paid that they expect to have to pay out as claims in the future. Until the payout is made, they get to invest that money. Insurance is, in one way, a free loan to the insurance company. Insurance companies will occasionally pay out more in claims than they bring in through premiums just so they can hold the money. For example: in Berkshire Hathaway's (they own Geico among other insurance business) 2022 activity they noted that they posted an underwriting loss of 90 million. They paid out 90 million more in claims than they collected through premiums. This is fine because their float is ~160 billion plus. When you view it this way, it means they paid 90 million for the opportunity to invest 160 billion. That is a super low interest rate. Warren Buffet, founder of Berkshire Hathaway, has written extensively about how the insurance industry is really not profitable at all from collecting premiums, but from a high level view it is a great way to borrow massive amounts of money for almost free. The downside is that you don't know when a loan is going to get called in, and if your actuaries got the premiums right. So really, the main job of insurance companies is to sell as many policies as possible, as close to cost as possible, and then hand the bag of money off to get reinvested. Granted, they are happy to make an underwriting profit, but the main goal is to make an investing profit off your premiums before the money is needed to pay a valid claim.
- yjftsjthsd-h 3y ago
  I'm not following. If they couldn't actually build out a network at the given price, why would they put in a bid?
  - Qwertious 3y ago
    Because the bid nets them money now. And if they can't do the job, then they can beg for more govt assistance or just not deliver.
    - Kon-Peki 3y ago
      It was just standard Trump Administration corruption. The whole plan was for Trump to still be president so they could get approval to not do the work at all but keep the money.
      - GauntletWizard 3y ago
        This has been going on literally since Clinton. Try again.
        bacchusracine 3y ago
        Exactly. What is this? The fourth or fifth time we've played this game with the telecoms now? Enough is enough already.
- Spooky23 3y ago
  That philosophy is a problem. The main job of any business to to fulfill their contractual obligations. If the management is so incompetent that they sign up for money losing contracts, the owners should fire them.
calgarymicro 3y ago
> A group of Internet service providers that won government grants are asking the Federal Communication Commission for more money or an "amnesty window" in which they could give up grants without penalty. This would still probably result in a large loss to the government due to administrative and opportunity costs, but honestly I think this would be the best outcome at this point.
- moate 3y ago
  Nah, punishing capital is always the best outcome. You want to privatize gains, take your fucking lumps and/or die as a corporate entity.
  - deleted 3y ago
    [deleted]
- LadyCailin 3y ago
  > large loss to the government No, a large loss to the people who paid taxes. Meaning that such an outcome would be terrible.
  - calgarymicro 3y ago
    > No, a large loss to the people who paid taxes. It's both, not either/or. > Meaning that such an outcome would be terrible. Less terrible than a total write-down.
    - justinclift 3y ago
      If they're made to honour their agreement (especially at substantial loss), then wouldn't these bad actors avoid underbidding in future auctions?
- Hizonner 3y ago
  How about "fuck them"? Sounds like a much more reasonable outcome to me. You make a deal, you deliver on the deal. If you failed to predict your costs, that is 100 percent your problem. Especially when you're a giant corporate entity that's supposed to be "sophisticated".
bombcar 3y ago
Meanwhile something like three separate independent providers have dug through my lawn to lay fibre. I guess I win?
zamalek 3y ago
Rosenworcel is the polar opposite of Pai, honestly one of the best politicians in a while. Ending robocalls and Pai's gravy train, what a GOAT.
anigbrowl 3y ago
The group's attorney, Philip Macres of Klein Law Group, told Ars today that he is "not at liberty to provide the list of all the members in the Coalition of RDOF Winners." You want to lobby the government for a sweetheart deal because you failed at risk management, but you also want to keep all your reputational capital? How about NO. The ethical deficit in many business entities is contemptible.
- anigbrowl 3y ago
  I forgot to add that there's something fundamentally sketchy about the idea of government being lobbied by anonymous or quasi-anonymous entities. It's an invitation to corruption. Suppose you reasonably suspect a politician has been bribed (due to a sudden about-face or laughably poor argumentation for a legislative change); it's much harder to investigate when you can't even identify who is lobbying.
jtode 3y ago
Inb4 what's the problem that's just good business
gaadd33 3y ago
Someone should just lobby the FCC under the group "coalition of RDOF success" and say they don't need anything and that the FCC should penalize any winner who doesn't deliver 2x the amount of their award. No need to disclose who is part of the group, it could be anyone or no one just like this group.
andrewstuart 3y ago
Governments should give broadband money only for one thing….. proof of a high speed connection in a premises. Outcome. Money for the outcome only. Should never give a dime for anything else.
rasz 3y ago
https://www.huffpost.com/entry/the-book-of-broken-promis_b_5839394 https://www.huffpost.com/entry/the-book-of-broken-promis_b_5... The Book Of Broken Promises: $400 Billion Broadband Scandal And Free The Net By the end of 2014, America will have been charged about $400 billion by the local phone incumbents, Verizon, AT&T and CenturyLink, for a fiber optic future that never showed up.
thinkcontext 3y ago
I wonder if they'll revisit revoking SpaceXs award. Or maybe have some sort of rebid process.

137 points by specto 3y ago

That's what they're economically motivated to do, and it will work. The main job of your insurance companies is to find a way to refuse your claim, and the main job of the recipients of government grants is to reduce deliverables and compliance monitoring. ----- > Telecom industry consultant Doug Dawson wrote a blog post calling the RDOF process "badly flawed since the beginning. Some auction winners bid down prices a lot lower than expected. The areas that were available in many places are scattered and don't create a reasonable footprint for building a broadband solution." > "I have no doubt that many RDOF winners are now looking at a broken financial model for fulfilling their promise. They are stuck with a terrible dilemma—build the promised networks and have a losing business or pay a substantial penalty to withdraw from RDOF," Dawson wrote. https://en.wikipedia.org/wiki/Winner's_curse https://en.wikipedia.org/wiki/Winner's_curse

polygamous_bat 3y ago
Invisible hand of the market in action, isn't that wonderful.
- lotsofpulp 3y ago
  Invisible hand only works if there are many buyers and many sellers, and if market participants are subject to the costs of externalities.
  - psd1 3y ago
    ...and laws are enforced
- Spooky23 3y ago
  More like the visible middle finger of a cartel.
Sniffnoy 3y ago
Hm, I guess a second-price auction would only help somewhat with that, huh?
- wmf 3y ago
  Yeah, if multiple companies are underbidding the winner will still not have enough money to build a network.
linsomniac 3y ago
I had looked at the GIS maps of some of these service areas around me, and it looked like the submission of these bids was from an automated system, that no human had reviewed. There were all sorts of little carve outs by some company on the east coast. I seem to recall some were in parks or wildlife areas inside the city, some were tiny 2 or 3 house areas. Not surprised they are concerned about the costs of serving some of these areas, serving a couple houses in the middle of town is going to be astronomical.
- inemesitaffia 3y ago
  Likely SpaceX
  - linsomniac 3y ago
    No, there were some swaths of SpaceX, but this was another company I had never heard of, I want to say the company was listed as being in Virginia, but I don't remember any details.
    - inemesitaffia 3y ago
      Maybe LTD broadband? I know SpaceX bid for almost every square inch of the US
dghlsakjg 3y ago
Nitpick: The main job of the insurance company is to make money with the float, not to make money by denying claims. The float is premiums paid that they expect to have to pay out as claims in the future. Until the payout is made, they get to invest that money. Insurance is, in one way, a free loan to the insurance company. Insurance companies will occasionally pay out more in claims than they bring in through premiums just so they can hold the money. For example: in Berkshire Hathaway's (they own Geico among other insurance business) 2022 activity they noted that they posted an underwriting loss of 90 million. They paid out 90 million more in claims than they collected through premiums. This is fine because their float is ~160 billion plus. When you view it this way, it means they paid 90 million for the opportunity to invest 160 billion. That is a super low interest rate. Warren Buffet, founder of Berkshire Hathaway, has written extensively about how the insurance industry is really not profitable at all from collecting premiums, but from a high level view it is a great way to borrow massive amounts of money for almost free. The downside is that you don't know when a loan is going to get called in, and if your actuaries got the premiums right. So really, the main job of insurance companies is to sell as many policies as possible, as close to cost as possible, and then hand the bag of money off to get reinvested. Granted, they are happy to make an underwriting profit, but the main goal is to make an investing profit off your premiums before the money is needed to pay a valid claim.
yjftsjthsd-h 3y ago
I'm not following. If they couldn't actually build out a network at the given price, why would they put in a bid?
- Qwertious 3y ago
  Because the bid nets them money now. And if they can't do the job, then they can beg for more govt assistance or just not deliver.
  - Kon-Peki 3y ago
    It was just standard Trump Administration corruption. The whole plan was for Trump to still be president so they could get approval to not do the work at all but keep the money.
    - GauntletWizard 3y ago
      This has been going on literally since Clinton. Try again.
      - bacchusracine 3y ago
        Exactly. What is this? The fourth or fifth time we've played this game with the telecoms now? Enough is enough already.
Spooky23 3y ago
That philosophy is a problem. The main job of any business to to fulfill their contractual obligations. If the management is so incompetent that they sign up for money losing contracts, the owners should fire them.

calgarymicro 3y ago

> A group of Internet service providers that won government grants are asking the Federal Communication Commission for more money or an "amnesty window" in which they could give up grants without penalty. This would still probably result in a large loss to the government due to administrative and opportunity costs, but honestly I think this would be the best outcome at this point.

moate 3y ago
Nah, punishing capital is always the best outcome. You want to privatize gains, take your fucking lumps and/or die as a corporate entity.
- deleted 3y ago
  [deleted]
LadyCailin 3y ago
> large loss to the government No, a large loss to the people who paid taxes. Meaning that such an outcome would be terrible.
- calgarymicro 3y ago
  > No, a large loss to the people who paid taxes. It's both, not either/or. > Meaning that such an outcome would be terrible. Less terrible than a total write-down.
  - justinclift 3y ago
    If they're made to honour their agreement (especially at substantial loss), then wouldn't these bad actors avoid underbidding in future auctions?
Hizonner 3y ago
How about "fuck them"? Sounds like a much more reasonable outcome to me. You make a deal, you deliver on the deal. If you failed to predict your costs, that is 100 percent your problem. Especially when you're a giant corporate entity that's supposed to be "sophisticated".

bombcar 3y ago

Meanwhile something like three separate independent providers have dug through my lawn to lay fibre. I guess I win?

zamalek 3y ago

Rosenworcel is the polar opposite of Pai, honestly one of the best politicians in a while. Ending robocalls and Pai's gravy train, what a GOAT.

anigbrowl 3y ago

The group's attorney, Philip Macres of Klein Law Group, told Ars today that he is "not at liberty to provide the list of all the members in the Coalition of RDOF Winners." You want to lobby the government for a sweetheart deal because you failed at risk management, but you also want to keep all your reputational capital? How about NO. The ethical deficit in many business entities is contemptible.

anigbrowl 3y ago
I forgot to add that there's something fundamentally sketchy about the idea of government being lobbied by anonymous or quasi-anonymous entities. It's an invitation to corruption. Suppose you reasonably suspect a politician has been bribed (due to a sudden about-face or laughably poor argumentation for a legislative change); it's much harder to investigate when you can't even identify who is lobbying.

jtode 3y ago

Inb4 what's the problem that's just good business

gaadd33 3y ago

Someone should just lobby the FCC under the group "coalition of RDOF success" and say they don't need anything and that the FCC should penalize any winner who doesn't deliver 2x the amount of their award. No need to disclose who is part of the group, it could be anyone or no one just like this group.

andrewstuart 3y ago

Governments should give broadband money only for one thing….. proof of a high speed connection in a premises. Outcome. Money for the outcome only. Should never give a dime for anything else.

rasz 3y ago

https://www.huffpost.com/entry/the-book-of-broken-promis_b_5839394 https://www.huffpost.com/entry/the-book-of-broken-promis_b_5... The Book Of Broken Promises: $400 Billion Broadband Scandal And Free The Net By the end of 2014, America will have been charged about $400 billion by the local phone incumbents, Verizon, AT&T and CenturyLink, for a fiber optic future that never showed up.

thinkcontext 3y ago

I wonder if they'll revisit revoking SpaceXs award. Or maybe have some sort of rebid process.