That's what they're economically motivated to do, and it will work. The main job of your insurance companies is to find a way to refuse your claim, and the main job of the recipients of government grants is to reduce deliverables and compliance monitoring.
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Telecom industry consultant Doug Dawson wrote a blog post calling the RDOF process "badly flawed since the beginning. Some auction winners bid down prices a lot lower than expected. The areas that were available in many places are scattered and don't create a reasonable footprint for building a broadband solution."
"I have no doubt that many RDOF winners are now looking at a broken financial model for fulfilling their promise. They are stuck with a terrible dilemma—build the promised networks and have a losing business or pay a substantial penalty to withdraw from RDOF," Dawson wrote.
Nitpick: The main job of the insurance company is to make money with the float, not to make money by denying claims. The float is premiums paid that they expect to have to pay out as claims in the future. Until the payout is made, they get to invest that money. Insurance is, in one way, a free loan to the insurance company. Insurance companies will occasionally pay out more in claims than they bring in through premiums just so they can hold the money.
For example: in Berkshire Hathaway's (they own Geico among other insurance business) 2022 activity they noted that they posted an underwriting loss of 90 million. They paid out 90 million more in claims than they collected through premiums. This is fine because their float is ~160 billion plus. When you view it this way, it means they paid 90 million for the opportunity to invest 160 billion. That is a super low interest rate.
Warren Buffet, founder of Berkshire Hathaway, has written extensively about how the insurance industry is really not profitable at all from collecting premiums, but from a high level view it is a great way to borrow massive amounts of money for almost free. The downside is that you don't know when a loan is going to get called in, and if your actuaries got the premiums right.
So really, the main job of insurance companies is to sell as many policies as possible, as close to cost as possible, and then hand the bag of money off to get reinvested. Granted, they are happy to make an underwriting profit, but the main goal is to make an investing profit off your premiums before the money is needed to pay a valid claim.
I had looked at the GIS maps of some of these service areas around me, and it looked like the submission of these bids was from an automated system, that no human had reviewed. There were all sorts of little carve outs by some company on the east coast. I seem to recall some were in parks or wildlife areas inside the city, some were tiny 2 or 3 house areas. Not surprised they are concerned about the costs of serving some of these areas, serving a couple houses in the middle of town is going to be astronomical.
No, there were some swaths of SpaceX, but this was another company I had never heard of, I want to say the company was listed as being in Virginia, but I don't remember any details.
That philosophy is a problem. The main job of any business to to fulfill their contractual obligations.
If the management is so incompetent that they sign up for money losing contracts, the owners should fire them.
Comments
That's what they're economically motivated to do, and it will work. The main job of your insurance companies is to find a way to refuse your claim, and the main job of the recipients of government grants is to reduce deliverables and compliance monitoring.
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https://en.wikipedia.org/wiki/Winner's_curse
Nitpick: The main job of the insurance company is to make money with the float, not to make money by denying claims. The float is premiums paid that they expect to have to pay out as claims in the future. Until the payout is made, they get to invest that money. Insurance is, in one way, a free loan to the insurance company. Insurance companies will occasionally pay out more in claims than they bring in through premiums just so they can hold the money.
For example: in Berkshire Hathaway's (they own Geico among other insurance business) 2022 activity they noted that they posted an underwriting loss of 90 million. They paid out 90 million more in claims than they collected through premiums. This is fine because their float is ~160 billion plus. When you view it this way, it means they paid 90 million for the opportunity to invest 160 billion. That is a super low interest rate.
Warren Buffet, founder of Berkshire Hathaway, has written extensively about how the insurance industry is really not profitable at all from collecting premiums, but from a high level view it is a great way to borrow massive amounts of money for almost free. The downside is that you don't know when a loan is going to get called in, and if your actuaries got the premiums right.
So really, the main job of insurance companies is to sell as many policies as possible, as close to cost as possible, and then hand the bag of money off to get reinvested. Granted, they are happy to make an underwriting profit, but the main goal is to make an investing profit off your premiums before the money is needed to pay a valid claim.
I had looked at the GIS maps of some of these service areas around me, and it looked like the submission of these bids was from an automated system, that no human had reviewed. There were all sorts of little carve outs by some company on the east coast. I seem to recall some were in parks or wildlife areas inside the city, some were tiny 2 or 3 house areas. Not surprised they are concerned about the costs of serving some of these areas, serving a couple houses in the middle of town is going to be astronomical.
Likely SpaceX
No, there were some swaths of SpaceX, but this was another company I had never heard of, I want to say the company was listed as being in Virginia, but I don't remember any details.
Maybe LTD broadband?
I know SpaceX bid for almost every square inch of the US
I'm not following. If they couldn't actually build out a network at the given price, why would they put in a bid?
Because the bid nets them money now. And if they can't do the job, then they can beg for more govt assistance or just not deliver.
It was just standard Trump Administration corruption.
The whole plan was for Trump to still be president so they could get approval to not do the work at all but keep the money.
This has been going on literally since Clinton. Try again.
Exactly.
What is this? The fourth or fifth time we've played this game with the telecoms now? Enough is enough already.
Invisible hand of the market in action, isn't that wonderful.
Invisible hand only works if there are many buyers and many sellers, and if market participants are subject to the costs of externalities.
...and laws are enforced
More like the visible middle finger of a cartel.
That philosophy is a problem. The main job of any business to to fulfill their contractual obligations. If the management is so incompetent that they sign up for money losing contracts, the owners should fire them.
Hm, I guess a second-price auction would only help somewhat with that, huh?
Yeah, if multiple companies are underbidding the winner will still not have enough money to build a network.