RDOF Auction Modeling for North American Network Operator
The Rural Digital Opportunity Fund (RDOF), which provides financial awards to U.S. network operators to deliver high-speed fixed broadband service to unserved rural homes and small businesses, was one of the most anticipated and highly contested incentive programs in recent FCC history. As broadband providers compete for precious government subsidies, they need to ensure that they have a holistic approach to submitting winning bids.
Altman Solon’s client, a North American Network Operator, needed a more comprehensive and efficient approach to model network builds at a granular level and develop competitive bids for individual census block groups (CBGs) for RDOF. Traditional metrics, such as household density or spatial morphology, are insufficient as cost per premises passed could vary significantly between census blocks that look very similar based on those metrics. For example, two adjacent CBGs in Eastern Washington State have similar household densities but vastly different cost-per-premises and Internal Rates of Return (IRR). Not recognizing these differences in build costs could create an inefficient distribution of grant awards.
To determine the right bid level, the Altman Solon team leveraged the Arrow platform, in tandem with business modeling and auction bidding scenario development.
A core component of the project was developing comprehensive cost modeling for Fiber to the Premises (FTTP) and Fixed Wireless deployments across eligible CBGs. Arrow was used to rapidly develop cost estimates by CBGs for both the client and likely competitors. The Arrow platform leverages three key sets of data inputs:
- Endpoint demand (e.g. households, multiple dwelling units, small businesses) including ARPU, service adoption rate, and target fair share
- Detailed costs for full bill of materials (e.g. cost per foot for arial fiber, cost per terminal)
- Network architecture design (e.g. central or distributed passive optic network architecture) and constraints (e.g. max distance Optical Line Terminal to home, drop cable length)
Based on these inputs, Arrow’s proprietary algorithms were used to rapidly model the required network build to serve premises in a given geospatial area – from a single CBG to thousands of CBGs. Arrow combined the detailed cost modeling with the endpoint demand and revenue potential to build a multi-year cashflow and business case allowing the client to determine how much to bid in eligible areas to hit financial return targets.
In addition, Arrow’s rapid “what-if” scenario analysis was leveraged to run multiple coverage scenarios for a given market (e.g. 100%, 95% or 90% coverage) and understand the cost and financial returns of each scenario. The scenarios were also extended to likely competitors in a given area by varying key assumptions (e.g. return targets, cost constraints, existing adjacent footprint). This allowed the client to gain a compressive understanding of how competitors are likely to bid for the same set of CBGs.
The team leveraged Arrow’s output of FTTP and Fixed Wireless coverage scenarios for RDOF-eligible areas, augmented them with RDOF-specific functionality (e.g. minimum bid calculator, penalty clawback), and calculated what competitors are likely to bid based on market presence and technology. This enabled more compressive business case modeling, including bid strategies. For example, the analysis enables a network operator to define a bidding strategy that undercuts competitors as long as a positive ROI is achieved.
This comprehensive analysis was then used to prepare for the FCC’s reverse RDOF auction conducted in the fall of 2020.
Altman Solon’s Arrow platform and comprehensive modeling allowed the client to submit competitive bids without compromising long-term financial and strategic considerations. With a competitive strategy, the client was able to win a significant share of CBGs that they had targeted and has continued to leverage Arrow’s detailed plan designs to further refine their network builds for each area.
The ability to rapidly develop scenarios for different technology types through Arrow enables Altman Solon’s telecom clients to effectively analyze and optimize network deployment decisions to minimize cost and maximize growth.