The Federal Communications Commission (FCC) today released the list of bidders (Lumen included) that completed applications for the Rural Digital Opportunity Fund (RDOF) Phase I Auction. In total, 386 applicants ended up qualifying for the RDOF auction.

The FCC’s RDOF is a rural fiber-to-the-home initiative. RDOF will replace the current Connect America Fund (CAF) II program, that will expire at the end of 2021. Of the 6 million RDOF households, 4 million are currently CAF II homes with speeds of 10 Mbps down / 1 Mbps up. These homes would require speed upgrades to 25 Mbps down / 3 Mbps up, under the RDOF program.

For Lumen, the CAF II expiration is a particular headwind. This is because Lumen generates $500m of annual revenue and a similar amount of EBITDA, from CAF II. At expiration of CAF II, this $500m contribution to revenue and EBITDA will likely go away. Lumen is not expected to bid aggressively in the RDOF auction. Specifically, because the company is facing financial challenges (i.e., high leverage) and is focused on turning around its Enterprise business.

Lumen owns 450k fiber route miles, connected to 170k buildings, and also owns 340 data centers globally.

The full list of Complete Applications and Incomplete Applications for RDOF demonstrates a diverse set of bidders. The list includes companies in the following sub-sectors of digital infrastructure:

Notable companies not participating in the RDOF auction include AT&T and Comcast. AT&T previously participated in the Connect America Fund (CAF) II auction, winning $428m in funding and accepting 1.1 millions locations.

Overall, the interested parties in the FCC’s RDOF auction demonstrates that bidding will be increasingly competitive. Particularly, from private equity-backed fiber providers and the CableCo’s focus on fiber-to-the-home initiatives.

Charter Communications Participation in RDOF Could Be Significant

In particular, Charter has stated publicly its intention to participate in the RDOF auction, with the potential to have “multi-million” passings and “multi-billion” in investments dollar-wise, over an 8-year period. Charter is particularly well poised to win a significant share of RDOF homes, given its balance sheet, near-net fiber, and shareholder support. Charter’s strength in-turn adversely affects Lumen’s future prospects.

Jonathan Kim covers Fiber for Dgtl Infra, including Zayo Group, Cogent Communications (NASDAQ: CCOI), Uniti Group (NASDAQ: UNIT), Lumen Technologies (NYSE: LUMN), Frontier Communications (NASDAQ: FYBR), Consolidated Communications (NASDAQ: CNSL), and many more. Within Fiber, Jonathan focuses on the sub-sectors of wholesale / dark fiber, enterprise fiber, fiber-to-the-home (FTTH), fiber-to-the-premises (FTTP), and subsea cables. Jonathan has over 8 years of experience in research and writing for Fiber.


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