Essays on the FCC’s Rural Digital Opportunity Fund
Creators: name: Nunez, Ignacio Javier
Publisher: name: The University of Texas at Austin
Year: 2022
Subjects: Simultaneous auctions
Industrial organization
Applied econometrics

description: Millions of people do not have access to high-speed Internet in rural and low-income areas. For this purpose, in 2020 the Federal Communication Commission (FCC) launched the Rural Digital Opportunity Fund (RDOF). This was a multi-billion dollar program to subsidize Internet providers willing to offer high-speed Internet in thousands of unserved areas under regulated prices and for the next ten years. To minimize the expenditure in subsidies the RDOF utilized a simultaneous multiple-round auction. This auction presents new empirical challenges to study bidders’ private values and the auction’s optimal design. This dissertation is divided into three essays. In the first essay, I introduce the FCC’s subsidy programs to provide universal access to high-speed Internet, including the rules of the RDOF auction and the dynamic game that the RDOF entails. I then describe the unserved areas, the bidders, and the realized allocation. Lastly, I show that the RDOF was overall successful compared to the previous FCC subsidy mechanism that it replaced. The RDOF procured Internet access in just above 57,000 unserved areas by spending $9.2 billion in subsidies. In contrast, the previous subsidy mechanism, which offered subsidies calculated with an engineering cost model, would have offered $25 billion—almost 200% higher. I conclude by discussing the most closely related literature on empirical methods to estimate private values in simultaneous multiple-round auctions. The second essay introduces an empirical approach to estimate a bidder’s private values—their minimal subsidies to offer high-speed Internet under the FCC rules. Specifically, I model Starlink, a satellite Internet provider that won nearly 34% of the awarded areas. In the model, Starlink requires a lump-sum subsidy per subscriber and a fixed lump- sum subsidy by U.S. state. I derive Starlink’s optimal bidding conditions and use them to estimate Starlink’s private values. I find that Starlink’s private value increases by $300 per subscriber to be served, and that Starlink has a fixed cost by U.S. state bounded from above by five million dollars. I estimate that Starlink’s rent was above 58% of their awarded subsidies and exceeded $500 million in total. The third essay introduces a framework to study incumbent fiber optic providers. In the model, one incumbent has a simple bidding problem and bids for each unserved area up to its private value. In contrast, the incumbent’s rivals are entrant providers, valuing the areas as complements and solving dynamic problems. The econometrician then observes censored values: the incumbent’s values when they are underbid by rivals, and the rivals’ lowest bids otherwise. Rivals’ lowest bids are modeled in reduced form and then jointly estimated with the incumbent’s values by maximum likelihood. I utilize this model to estimate the private values of Windstream in a set of areas that fit in the proposed framework. I find that Windstream’s rent was 44% of their awarded subsidies. I conclude by proposing reservation prices for reducing the government’s expenditure in subsidies.