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The Federal Communications Commission told SpaceX and other companies on Monday that the billions in rural broadband subsidies it doled out last year can’t be used in already connected areas like “parking lots and well-served urban areas,” citing complaints. The commission, in an effort to “clean up” its subsidy auction program, offered the companies a chance to rescind their funding requests from areas that already have service.

The companies that got the subsidies must do the work to determine they qualify for the money, wrote Michael Janson, director of the FCC’s Rural Broadband Task Force, in a letter addressed to SpaceX’s finance director David Finlay. Similar letters, first reported by Bloomberg, were sent to other recipients of...

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