Imagine committing billions of dollars to build a broadband network based in part on government promises of financial support. The possibilities excite your potential customers—rural Americans that lack broadband. But then, without warning, the government fails to follow its own rules and puts the promised support at risk.

What would you do? According to economists Oliver Williamson, Pablo Spiller, and Brian Levy, businesses’ common reaction to unreliable governments is to decrease investment. So in this scenario, Americans get less broadband.

This unfortunate scene is playing out before our eyes. In 2020, the Federal Communications Commission (FCC) committed to provide Starlink, a satellite internet network operated in 40 countries by Elon Musk’s SpaceX, with $885.5 million to expand broadband in unserved rural areas of the United States. But in August 2022, the FCC announced with almost no explanation that Starlink would receive nothing. Such whiplash must have other broadband providers reassessing their confidence in FCC decisions and in the broadband programs run by the National Telecommunications Information Administration.

Here’s how this came about. In 2020, the FCC developed a world-class system for efficiently expanding broadband into unserved rural areas. Called the Rural Digital Opportunity Fund (RDOF), the system used a proven auction process that made broadband providers compete in head-to-head price competition for financial support for extending broadband into specific unserved rural areas. In the auction, the “price” was the amount of money a bidder would require to provide the FCC’s specified services. A bidder that followed the rules and offered the best price (according to a detailed score sheet) for a particular area won the auction for that area.

Such auctions are generally successes. The FCC’s earlier use of this auction process lowered broadband funding requirements by 70 percent. And such auctions provide twice as much broadband per subsidy dollar than do government grant programs.

The FCC announced the RDOF auction results on December 7, 2020:

Bidders won funding to deploy high-speed broadband to over 5.2 million unserved homes and businesses. . . . Moreover, 99.7% of these locations will be receiving broadband with speeds of at least 100/20 Mbps, with an overwhelming majority (over 85%) getting gigabit-speed broadband. . . . A total of 180 bidders won auction support, to be distributed over the next 10 years.

One of the winning bidders was Starlink, which famously positioned a few of its low earth orbit (LEO) satellites to provide broadband in Ukraine after the Russian invasion, an effort bolstered by the US providing 5,000 Starlink terminals. More recently, Starlink aims to provide internet to Iranians amidst Iran’s self-imposed communications blackout.

But 18 months after announcing the auction results, the FCC said it is now rejecting Starlink’s bids. Among the reasons given were that the agency’s Wireline Competition Bureau (Bureau) had concluded that LEO-based broadband is a “nascent” and “risky” technology, questioned Starlink’s “ability to timely deploy future satellites,” believed that Starlink could not deliver the speeds it promised, and believed that Starlink’s business plans were “not realistic” or “predicated on aggressive assumptions and predictions.” No details were provided.

These conclusions and the lack of transparency are troubling because the FCC knew Starlink’s technology, capabilities, and plans before the auction took place. The agency offered no explanation as to what had changed since 2020, except that the Bureau was unhappy with Starlink’s “inadequate responses to the Bureau’s follow-up questions” and that, according to Ookla data not in the official record, Starlink’s delivered speeds had declined (by an unspecified amount) the first six months of 2022.

The FCC needs to explain this decision. When William Kennard was FCC chairman in the late 1990s, the agency developed a guide called Connecting the Globe: A Regulator’s Guide to Building a Global Information Community. It specified that to be successful, a regulatory agency needs to encourage investor confidence by avoiding “arbitrary changes in rules” and to be transparent in decision-making. The guide explained, “Transparency means that the process of arriving at regulatory policies and specific rulings is open, consistent and predictable.” The FCC violated these principles in its Starlink decision.

In addition, the Bureau’s claims are questionable. LEO-based internet is hardly nascent. The EU is investing nearly $6 billion in developing and deploying LEOs. Also, Amazon’s Project Kuiper has the majority of its planned 3,000 satellites operating. And Starlink seems quite capable of launching satellites. The company had 60 functional satellites in May 2019, jumped this number to 1,735 by May 2021, and had about 2,500 LEOs in orbit by May 2022. Launching 800 satellites per year is more than pretty good.

The FCC owes Americans and investors an explanation. It is hard to have faith in a process that reverses a $885.5 million decision with a vague, one-paragraph explanation hidden away in the ninth page of the FCC’s public notice.

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