State Obstacles Pile Up for Auction Winner LTD Broadband

State telecom industry groups seek to stop LTD Broadband from receiving promised Rural Digital Opportunity Fund (RDOF) funding in Minnesota and South Dakota. The efforts to deny eligible telecom carrier (ETC) status to the company are the latest in a growing number of state hurdles LTD faces as it tries to secure funding it preliminarily won from FCC auction. Some said the situation shows state ETC designation review’s value, but former Commissioner Mike O’Rielly said the process isn’t working.

The South Dakota Public Utilities Commission will consider at its May 24 meeting LTD’s request to rehear or reconsider the PUC’s 2-1 ETC denial (see 2202220060), said an agenda released Tuesday. LTD won about $46.6 million in 10-year RDOF support in the state, shows a December 2020 FCC document. The Minnesota PUC is taking comment on an industry petition to revoke ETC designation granted last year (see 2205110034). LTD won about $311.9 million there, the most it got in any state.

Saying LTD failed to show legal error, the California PUC on May 5 denied reconsideration of its unanimous December decision to reject LTD’s application for certificates needed to deny the company about $187.5 million in RDOF support. LTD awaits a decision on an appeal of the Iowa Utilities Board’s ETC denial, which was needed to get about $23.2 million in that state. Iowa District Court for Polk County held virtual oral argument April 15.

LTD Broadband is “prepared to build in any state that will let us,” CEO Corey Hauer emailed Tuesday. “Our 13 year history of building rural wireless was all about getting to as many unserved customers as we could. Our plan is the same for fiber.”

Nothing has changed to dispel doubts the South Dakota Telecommunications Association (SDTA) has about LTD’s ability to provide required services in the required time frame, said SDTA Executive Director Kara Semmler in an interview. SDTA urged the commission to reject LTD’s request May 9 in docket TC21-001.

The FCC should have done "some additional vetting done at the front end," but it was good that the federal agency preserved states’ ETC designation process to vet RDOF application winners, said Semmler. Most of SDTA’s 18 small rural LECs have 100% fiber networks; the rest will be within five years, she said. Semmler wouldn’t say if her members planned to serve areas where LTD won RDOF support. With the NTIA recently releasing a notice of funding opportunity for the broadband equity, access and deployment (BEAD) program, “we’re excited to have those conversations with our state broadband office.”

South Dakota PUC staff isn’t opposed to a rehearing that considers additional evidence provided by LTD, though the commission isn’t “obligated” to grant rehearing, said a May 10 filing: But the PUC should reject the company’s claim that the order and its fact findings were erroneous. “The Commission did not exceed the authority in statute and administrative rule in finding that granting LTD ETC designation is not in the public interest." Without vetting, it’s unclear whether LTD’s new evidence “is compelling enough to result in a different Commission decision,” staff said.

The Minnesota PUC sought comments by June 1 on the Minnesota Telecom Alliance (MTA) and Minnesota Rural Electric Association’s petition in docket M-21-133 to revoke LTD’s state ETC status. The PUC granted the company’s application June 3.

“We felt this was something we needed to do,” despite the PUC rejecting the association’s objections to LTD’s original petition for ETC status, MTA President Brent Christensen told us. “There just wasn’t the evidence we have now.” Christensen isn’t concerned with the FCC vetting process, since state ETC reviews were meant to be part of it, he said. MTA members plan to provide broadband in Minnesota areas won by LTD, if they don’t already, said Christensen. They could extend service by applying for federal BEAD funding, he said. MTA members include Lumen and many smaller independent telecom companies and cooperatives, said Christensen: Most provide fiber to the premises, though some do fixed wireless and some still have DSL.

LTD defaults reduced its total locations nationally by about 30% to 366,000 from 528,088 it preliminarily won, said the Minnesota associations' petition, citing other state denials and FCC announcements showing LTD in default for bids in several states Dec. 16 and Jan. 28. Defaults were mostly due to "failure to meet basic timelines,” they said. The industry groups promised to give evidence showing LTD probably wouldn’t be able to provide broadband to about 102,000 Minnesota locations.

“Interesting that rural ILECs feel they are the only people capable of building fiber networks,” said Hauer on SDTA’s objections. In Minnesota, the PUC followed its rules expanding LTD Broadband's existing ETC designation from its Connect America Fund II footprint to its RDOF area, said the CEO: If the associations’ “argument reduces to ‘we don't like competition,’ I don't know how to react to that.” LTD has already “completed mainline construction” in five small Minnesota cities and is “completely spliced and installing our first customers in two,” said Hauer: And it’s constructing a 96-mile fiber ring as a middle mile backbone for two counties.

Hauer thinks LTD made a strong case in Iowa court that state regulators failed to follow their own rules when they rejected ETC status. The CEO wouldn’t divulge LTD’s next steps at the CPUC but noted the agency also rejected ETC status for two other companies. It seems California intends “to steal the money from RDOF awardees to put in state coffers,” following the example of New York state in CAF2, he said. The CPUC didn’t comment.

Process Concerns

New Street analyst Blair Levin said the FCC “could deny funding for a variety of reasons, but the ETC process, and LTD's inability to obtain the designations everywhere where it operates, presents a clear and helpful factual pattern for the FCC.” Vetting for auctions “always involves a trade-off,” said Levin: If “too tough, it wastes resources and reduces the number of bidders,” but if “too easy, it increases the risk of defaults down the road.”

“It’s not surprising that non-winners are trying to use the state ETC process to set aside the auction process,” emailed O’Rielly, who condemned the ETC process in 2020. “No matter what anyone thinks of any application, the state ETC process remains broken.” The Republican said it appears the FCC “is conducting the RDOF approval process with exceptional due diligence.”

With so many red flags in states, “I'm not surprised the FCC has not started to write them checks,” emailed Institute for Local Self-Reliance Director-Community Broadband Networks Christopher Mitchell. “When I see this much activity among state PUCs centering on the biggest winner of RDOF money, it makes me wish” the previous FCC under Chairman Ajit Pai “had taken its job seriously in vetting ISPs prior to the bidding.” Mitchell said the FCC, under both political parties, “has failed to effectively distribute broadband subsidies for many years and that is why NTIA and the states are in charge now.”

Potential broadband funding recipients must give “adequate assurances that they will use that money responsibly” and “have the technical, managerial, and financial capabilities necessary to deliver on their commitments,” said Andrew Long, Free State Foundation senior fellow. But the state ETC process, designed for voice, “is the wrong tool for achieving that important goal,” he said. “That the Commission did not require participants in the RDOF reverse auction to submit ETC applications until after they were declared the winning bidder arguably underscores the extent of that administrative burden.” He won’t assess merits of the various state-level objections, but Long noted the challenges “necessarily will delay the construction of broadband infrastructure in unserved areas.”

The FCC declined to comment. It’s tough to predict what the commission will do since it’s such an unusual situation, said CCG Consulting President Doug Dawson. “This whole thing is a big mess from a regulatory perspective.”