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Boston Internet service Starry drops out of federal subsidy program

Starry won approval from federal regulators in September to provide subsidized service in eight states, but has since defaulted on its obligations, according to the FCC.Jessica Rinaldi/Globe Staff

Boston wireless Internet company Starry has backed out of a federal subsidy program, forfeiting about $270 million of future payments.

The Federal Communications Commission on Wednesday said that Starry’s Connect Everyone LLC subsidiary had defaulted on its obligations under the government’s Rural Digital Opportunity Fund program. Starry declined to comment.

Last month, the FCC approved Starry’s bids to provide subsidized service in parts of eight states, including Arizona, Colorado, and Illinois. Starry was in line to collect $270 million for providing service over the next 10 years. Under the RDOF program, bidders competed to offer connectivity in unserved areas for the lowest cost.

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The default by Starry comes as it faces a cash crunch to expand its consumer wireless Internet service. Using wireless spectrum instead of cable connections, Starry had almost 81,000 customers at the end of June for its service in parts of Boston, New York, Washington, D.C., Columbus, Denver, Las Vegas, San Francisco, and Los Angeles. Revenue for the first half of the year totaled $15 million, generating a net loss of $90 million.

But the company had only $100 million in cash on its balance sheet at the end of June. That would only be enough to support Starry’s current rate of expansion through the end of this year, analyst Craig Moffett at MoffettNathanson Research noted.

“Starry’s funding shortfall has blossomed into a full-blown crisis,” he said. “Building out in rural markets, even with RDOF subsidies, would be a luxury they can no longer afford. Until they solve the financing problem, they’re going to be in full-on austerity mode.”

Starry did not explain its decision to back out of the RDOF program, but the company will avoid the expense of expanding into the new areas where it planned to offer subsidized service. The FCC said it may fine Starry thousands of dollars for defaulting, however.

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Raising capital is no easy matter for Starry, which has seen its stock price shrivel since it went public in March by merging with a special purpose acquisition company. The deal raised less than half of the $450 million initially anticipated, as investors already started to flee SPAC deals. And since then, Starry’s stock price has dropped from $9.62 to $1.12.


Aaron Pressman can be reached at aaron.pressman@globe.com. Follow him @ampressman.