Federal regulators have quashed LTD Broadband's controversial efforts to become a major provider of rural broadband in Minnesota and several other states, leaving the buildout program in limbo.

LTD, which had won $311 million in federal subsidies to deploy broadband in Minnesota alone, "is not reasonably capable of complying" with requirements for the program, the Federal Communications Commission (FCC) ruled Wednesday.

The ruling echoes questions raised by telecom and broadband industry groups — and regulators in some states — about LTD's ability to complete its contracts.

The FCC also ruled against Starlink's $885.5 million in rural broadband subsidies — including $8.4 million for Minnesota — which were awarded under the same program. Starlink is a satellite internet service offered by SpaceX, Elon Musk's rocket company.

The FCC's ruling on LTD is "a big deal," said Brent Christensen, president of the Minnesota Telecom Alliance.

"This is all uncharted territory," Christensen said. "A lot of us don't know what is going to happen."

An FCC spokesman said the locations for LTD's winning bids will be eligible for other state and federal rural broadband funding programs. The federal government is expected to conduct other subsidy auctions.

Minnesota counties where LTD was supposed to do the buildout may now be able to more confidently bid for state broadband subsidies. They had been shut out of state programs because of possible overlap with LTD territories — even though some counties worried that LTD's efforts would fail.

But even if there might be other funds available, it may still mean more delays for the needed projects. Rural communities and businesses say the lack of reliable broadband is holding back economies outside metro areas and further eroding small towns.

To help remedy that problem, the federal Rural Digital Opportunity Fund was created. The FCC in December 2020 held an auction for the fund, with winners submitting the lowest bids and the speediest download times.

LTD, a relatively small player in the broadband business, snared $1.3 billion of $9.2 billion in the auction. It was the biggest award for any company and covered portions of 15 states.

"Ultimately, the FCC review concluded that LTD was not reasonably capable of deploying a network of the scope, scale and size required by LTD's extensive winning bids," the FCC said.

LTD is based in Las Vegas, where founder Corey Hauer, an entrepreneur from southern Minnesota, now lives. The largest concentration of the company's employees is in Minnesota.

In Minnesota, LTD won 76 % of all money allocated to the state from the 2020 federal auction. Its grants cover 102,000 locations in parts of 38 counties.

All of LTD's winning bids nationally that weren't already in default, are now in default, the FCC said.

In a statement, Hauer said LTD is "extremely disappointed in the FCC staff decision" and is "evaluating its next steps."

"I don't believe the FCC fully appreciated the benefits LTD Broadband would bring to hundreds of thousands of rural Americans," he said.

The Minnesota Public Utilities Commission is investigating whether to revoke a key permit for LTD. It's not clear what will become of that investigation.

The inquiry stems from a petition by the Minnesota Telecom Alliance and a trade group for the state's electricity co-ops, both of which have members deploying broadband. They claimed that LTD is essentially incapable of building out the network it has promised.

The trade groups pointed to LTD's trouble in South Dakota, where state regulators rejected its permit in March, saying the company lacked technical and financial capabilities. Regulators in California, Iowa and North Dakota also rejected permits for LTD.

Winning bidders in the 2020 auction had to submit to the FCC a "long-form" application, which included detailed financial and technical information. The FCC said Wednesday that it had rejected LTD's long-form application, as well as Starlink's.

Referring to both applications, the FCC said it "has an obligation to protect our limited Universal Service Funds and to avoid extensive delays in providing needed service to rural areas, including by avoiding subsidizing risky proposals that promise faster speeds than they can deliver, and/or propose deployment plans that are not realistic or that are predicated on aggressive assumptions and predictions."

Money for the 2020 auction comes from Universal Service Fund, which is fueled with fees paid by U.S. telephone users.

Starlink won bids in the auction for 7,592 locations in Minnesota.

"Starlink's technology has real promise," said FCC Chair Jessica Rosenworcel in a statement. "But the question before us was whether to publicly subsidize its still developing technology for consumer broadband — which requires that users purchase a $600 dish — with nearly $900 million in universal service funds until 2032."