Local Coordination Requirements for BEAD

One of the more interesting requirements of the BEAD grant process is that States must reach out to communities and stakeholders to make sure that everybody gets a voice in setting the state grant rules. This is something that communities of all kinds should be participating in.

It’s easy to think of the $42.5 billion BEAD grants as only for rural broadband. But the grant money can be used for a lot more purposes, such as bringing broadband to anchor institutions, bringing broadband to apartment buildings in low-income neighborhoods, funding broadband devices, training and workforce development, and for digital equity programs. This means there are a lot more opportunities for funding than just last-mile broadband, and any community interested in any of those areas should make sure that your State hears from you.

There is always a danger that states will merely give lip service to the local coordination process in order to check off a box at the NTIA. It’s up to communities and stakeholders to make it more than that.

The NTIA rules require states to reach out to the public and key stakeholders. The State must reach into all geographic corners. The NTIA rules require ‘meaningful’ engagement and dialog, whatever that means. States must utilize multiple awareness and participation mechanisms as part of the outreach. States are specifically tasked with reaching out to unserved and underserved communities, including underrepresented and marginalized groups. States are also required to document the outreach process.

I expect that outreach is going to happen in several ways. States will certainly announce in various ways that they want to hear from everybody in the state about the grants. States will likely request both written comments on its plans while also meeting with stakeholder groups. States might establish surveys to hear directly from the public. If a State fully follows the NTIA guidelines, it will also reach out somehow to unserved and marginalized stakeholders.

If a community wants to have any meaningful interaction with the State broadband folks, it must have a clear message of the issues that are most important. That makes it vital that local communities start holding conversations about what they hope to see out of the grant process.

Feedback from communities and stakeholders could cover anything having to do with the BEAD grants. If a County government believes the State won’t allow grants for government entities, this is the place to lodge a protest. If a city wants to make sure that low-income neighborhoods are not forgotten, this is the forum to give that voice. If a community is worried that the FCC mapping or unresolved RDOF grants will leave them behind, this is the forum to be heard.

In all cases, a community ought to clearly state what it wants to see out of the grants. Are there grant rules that must be more clearly spelled out in the State broadband proposal to the NTIA? Are there specific rules that the state should adopt, such as in important steps like how to handle challenges to the FCC maps? Are there rules the State is considering that a community finds unacceptable?

I know the nuances of the BEAD grants are probably hard for local communities and small stakeholders to understand. It’s hard to know if this is on purpose, but a lot of the complexity comes directly out of the legislation that enabled the grants – but the NTIA has layered on additional complexity. With that said, if a community doesn’t speak up during this process, you might have lost the chance to influence the way your state will administer the BEAD grants. It will be easy for states to concentrate on last-mile broadband and ignore the other many ways this money can be used – especially if they don’t hear from the public.

How Fast is Starlink Broadband?

We got a recent analysis of Starlink broadband speeds from Ookla, which gathers huge numbers of speed tests from across the country. The U.S. average download speeds on Starlink have improved over the last year, from an average of 65.72 Mbps in 1Q 2021 to 90.55 Mbps in 1Q 2022. But during that same timeframe, upload speeds got worse, dropping from an average of 16.29 Mbps in 1Q 2021 to 10.70 Mbps in 1Q 2022.

It’s likely that some of this change is intentional since ISPs have a choice for the amount of bandwidth to allocate to download versus upload. It seems likely that overall bandwidth capacity and speeds are increasing due to the continually growing size of the Starlink satellite constellation – now over 2,500. Starlink subscriptions are climbing quickly. The company reported having 145,000 customers at the start of the year and recently announced it is up to 400,000 customers worldwide. This fast growth makes me wonder when Starlink will stop calling the business a beta test.

These speed tests raise a few interesting questions. The first is if these speeds are good enough to qualify Starlink to be awarded the RDOF awards that have now been pending from the FCC for over a year and a half. While these speeds are now approaching the 100 Mbps speed promised by Starlink in its RDOF bids, it’s worth noting that the 90 Mbps number is an average. There are some customers seeing speeds of over 150 Mbps while others are seeing only 50 Mbps or even less. I’ve talked to a number of Starlink customers and what they’ve told me is that Starlink needs a view of the ‘whole sky’ from horizon to horizon to operate optimally, and many homes don’t have the needed view. This doesn’t bode well for the Starlink RDOF awards areas of heavy woods and hills like the awards in western North Carolina.

There is a lot of speculation that Starlink is limiting the number of subscribers in a given geographic area in order to not dilute speed and performance. The RDOF awards require any winning ISP to serve everybody, and there is still a big question about the kinds of speeds that can be delivered for a geographic area that has a lot of subscribers.

The BEAD grant rules also open the door for Starlink and other satellite providers to some extent. While satellite technology is not deemed reliable enough to directly be used for grant awards, the NTIA has also opened the door to using alternate technologies like satellite and fixed wireless using unlicensed spectrum in areas where landline technologies are too costly. Each state will have to decide if grants can be awarded for satellite broadband in such cases, and it seems likely that some states will allow this.

The Ookla article also shows the Starlink average speeds around the globe. Some of the average speeds are much faster than U.S. speeds, and this might be due to smaller countries that cover a smaller and less diverse terrain than the U.S. Here, speeds are likely much higher in the open plains states than for customers located in hills, mountains, and woods. There can’t be a technology difference since the same satellites serve around the globe.

There is an interesting app that shows the location of the Starlink satellites. It’s fascinating to watch how they circle the globe. What is most striking about the world map is how few satellites there are over the U.S. at any given time. The app shows a few closely packed strings of satellites that are recent launches that haven’t yet been deployed to their final orbits.

The skies are going to soon get a lot busier. The original business plan for Starlink was to deploy 11,000 satellites. Jeff Bezos and Project Kuiper have FCC permission to deploy satellites, with launches starting this year. OneWeb, which is now aiming to serve business and government customers, has much of its constellation launched but has yet to begin delivering services. Telesat is still marching slowly forward and has fallen behind due to supply chain issues and funding concerns – but still has plans to have a fleet in place in the next few years. I would imagine that in a few years, we’ll see Ookla reports comparing the different constellations.

Cable Subscriptions Continue to Dive

Leichtman Research Group recently released the cable customer counts for the largest providers of traditional cable service at the end of the first quarter of 2022. LRG compiles most of these numbers from the statistics provided to stockholders, except for Cox, which is privately held and estimated. Leichtman says this group of companies represents 96% of all traditional U.S. cable customers.

The industry continues to bleed customers, losing over 1.4 million customers in the fourth quarter, up from 1.3 million customers the previous quarter. Overall, the traditional cable providers lost almost 15,900 customers every day during the quarter.

1Q 2022 Change Change
Comcast 17,664,000 (512,000) -2.8%
Charter 15,721,000 (112,000) -0.7%
DirecTV 14,300,000 (300,000) -2.1%
Dish Network 7,993,000 (228,000) -2.8%
Verizon 3,566,000 (78,000) -2.1%
Cox 3,310,000 (80,000) -2.4%
Altice 2,658,700 (73,600) -2.7%
Mediacom 555,000 (17,000) -3.0%
Frontier 363,000 (17,000) -4.5%
Breezeline 339,021 (7,708) -2.2%
Cable ONE 238,000 (23,000) -8.8%
   Total 66,707,721 (1,448,308) -2.1%
Hulu Live 4,100,000 (200,000) -4.7%
Sling TV 2,252,000 (234,000) -9.4%
FuboTV 1,056,245 (73,562) -6.5%
Total Cable 40,485,721 (825,308) -2.0%
Total Telco / Satellite 26,222,000 (623,000) -2.3%
Total vMvPD 7,408,245 (507,562) -6.4%

It doesn’t look like people are replacing traditional cable with an online alternative like Hulu and Sling TV – which are also losing customers. A few major online alternatives like YouTube TV aren’t on the list, but the loss in traditional cable far surpasses any net gain for the online cable alternatives.

Charter is still losing customers at a slower rate than everybody else in the industry and has for the past several years. Charter CEO Tom Rutledge explains this by Charter’s willingness to move cable subscribers to less expensive tiers, such as the $44.99 Spectrum TV Select product. He says that Charter actively points out to customers that the online alternatives cost more. The rest of the industry seems resigned to letting cable customers go.

This drops the overall penetration rate of traditional TV to just above 51% of households. The industry has lost over fifteen million customers since the end of 2017 when traditional cable was in over 73% of homes.

One of the consequences of the rapid drop in cable customers is that cable companies are losing the power of the bundle. The traditional cable industry has lost almost one-third of all cable customers since 2017, greatly reducing opportunities to retain customers with bundling discounts.

When to Raise Rates

I’ve been getting the question lately about raising broadband rates. I don’t think there is a decision that smaller ISPs agonize over more than the idea of increasing prices to customers. The question is obviously being raised now due to inflation. Small ISPs see their costs increasing for fuel, materials, and requests from employees for salary increases – and ISPs see margins shrinking.

The current economy is particularly traumatic for newer ISPs who haven’t gone through an inflationary period before. It’s not particularly comforting to them to hear that over the life lifecycle of the economy that periodic bouts of inflation are normal. For most of my career, I’ve seen a recession and a period of inflation roughly every ten years. Inflation was never fun, but it was never unexpected.

We’ve just lived through one of the most unusual economic periods of the last few centuries. Everything we came to expect as normal, like periods of inflation and fluctuating interest rates has not happened for over a decade. The U.S. economy has never had such a stable and ideal period where the economic outlook was completely predictable – and good. Much of what we experienced came through government actions to suppress interest rates, to the point that the federal reserve interest rate even went negative for a short time.

ISPs worry about how customers will react to price increases. ISPs fear they will lose customers to competitors if they raise rates even a little. I can remember working with a client over twenty years ago who agonized for over a year about a $1 increase in telephone rates. They were sure that would drive consumers to drop telephone service in droves. It turns out that nobody dropped telephone service after the rate increase.

I hate to say this, but we can learn a lesson from the biggest ISPs. The big cable companies have been raising rates aggressively for the last five years – not in reaction to higher costs but strictly to drive up profits and improve stock prices. If you look back twenty years, you’ll see the all-in rates for broadband from companies like Comcast and Charter have risen at least $20 per month. The big ISPs are often sneaky about the increases and hide a lot of the rate increases in things like the cost of the broadband modem – but the checks that customers write have gone up every year.

A more salient example is the cellular carriers. Verizon and AT&T both recently announced rate increases – and these companies are now in a highly competitive market. Their reasoning is that they will lose some customers with a rate increase, but the gains from the customers that remain make the increase worthwhile. Small ISPs have to think of rate increases in the same way – you might lose a few customers, but the alternative is to do nothing and watch costs catch up to revenues.

Most other industries don’t agonize about rate increases in the way that ISPs do. If underlying costs go up, the makers of cereal, soap, and most things we buy raise rates to match. It’s always surprised me that very few small ISPs get this. Rate increases don’t have to be large, and an ISP might not be staring at a rate increase today if it had raised rates in prior years by a small amount each year when it was warranted. ISPs seem fixated on the concept that broadband prices must be at a value like $59.99 instead of $61.17. I really don’t know how that idea became so pervasive, but it’s a dumb one. Do ISPs really believe that consumers somehow equate $59.99 with fifty dollars and not sixty dollars? Because of this pricing paradigm, ISPs tend to wait until they have no choice and will raise the $59.99 rate to another magic number like $64.99 or even $69.99.

The need for rate increases during times of inflation is basic math. If your predominant product is broadband, and if costs are rising, you either raise rates or suffer a loss of margin – there isn’t any other alternative after you have done whatever belt-tightening you might do with expenses.

The only other alternative to rate increases is to sell a lot more broadband, but as broadband markets get mature, this gets to be harder to do. We are approaching a nationwide broadband penetration rate of 90%, and at some point, everybody who is willing to pay for broadband will have it.

My advice to ISPs has always been to make small rate increases over time, something small like 25 cents per year, rather than waiting until raising rates is a crisis and dramatic. But if you’ve waited until you have no option but to raise rates, then don’t be timid. Raise the rates to what is needed, and don’t be afraid to explain to your customers why you had to do so.

No Love for the Big ISPs

It’s the time of the year when the results come out for the American Customer Satisfaction Index that asks customers to rate their satisfaction with a wide range of industries and the larger companies within those industries. This is a huge nationwide poll that ranks the public’s satisfaction with 400 large companies in 45 sectors.

As has been happening for many years, the large Internet Service Providers come in dead last when comparing ISPs to 44 other industries. ISPs were given an overall customer service ranking of 64. The industries ranked just above ISPs at the bottom were related, with subscription TV services (66) and video-on-demand services (68). This puts ISPs below gas stations (68), hospitals (69), and the U.S. Post Office (70).

Following are the specific rankings for the ISPs included in the survey:

2021 2022
Verizon FiOS 71 72
T-Mobile N/A 71
AT&T Internet 71 69
Xfinity (Comcast) 67 66
Spectrum (Charter) 63 63
Windstream 61 62
Cox 63 61
Frontier 57 61
CenturyLink 62 60
MediaCom 60 60
Optimum (Altice) 60 59
Suddenlink (Altice) 55 53

I’ve been following the ASCI results for many years, and it’s normal to see the ranking score vary by a small amount from year to year. But it looks like a significant change to see Frontier’s leap from a 57 ranking to 61. Perhaps the message that Frontier has changed coming out of bankruptcy is reaching customers. The most interesting number is the ranking for T-Mobile, which has been added to this survey for the first time. The company came in second, just below Verizon FiOS. Verizon has been at the top of the survey ranking for many years.

At the bottom are the two Altice companies, with Suddenlink ranked at the bottom again with a ranking of 53. Interestingly, Altice announced recently that it is relabeling Suddenlink as Optimum – which is second worse in ranking. From there, other ISPs are ranked slightly higher than Altice, such as MediaCom, CenturyLink, and Cox.

Companies can change rankings within the industry, but it’s hard. A decade ago, Comcast was nearer the bottom of the rankings and has slowly climbed closer to the top. I’m not a Comcast customer (I once was), and I don’t know what they’ve done to change, but I’ve noticed that I no longer read what used to be almost monthly news articles talking of specific ways the company mistreated customers.

What I find most amazing about this ranking is how politicians have fought so hard and often to protect these companies from regulation. Maybe it’s just me, but I’ve always thought that a state politician running to strongly regulate the biggest cable company in a state would gain a lot of votes.

BEAD Grants in High-cost Areas

There are two interesting aspects of the BEAD NOFO that discuss how States might deal with parts of the country that have higher than average costs. As a reminder, when reading the following, Eligible Entity means a State broadband office. The two provisions are as follows:

An Eligible Entity may decline to select a proposal that requires a BEAD subsidy that exceeds the Extremely High Cost Per Location Threshold for any location to be served in the proposal if use of an alternative Reliable Broadband Service technology meeting the BEAD Program’s technical requirements would be less expensive.

 If no Reliable Broadband Service technology meeting the BEAD Program’s technical requirements would be deployable for a subsidy of less than the Extremely High Cost Per Location Threshold at a given location, an Eligible Entity is authorized to select a proposal involving a less costly technology for that location, even if that technology does not meet the definition of Reliable Broadband Service but otherwise satisfies the Program’s technical requirements.

Let’s unpack these two sections of the NOFO. The first citation says that in areas with high costs, a State should strongly consider using the lowest-cost technology that the NTIA has defined as capable of providing broadband speeds of at least 100/20 Mbps. To give an example, a State should give a preference in high-cost places to use fixed wireless using licensed spectrum instead of fiber.

The second quote goes further and says that a State can go even further and consider using a technology that is not considered capable of providing reliable broadband service. That might mean rejecting a proposal to build fiber and awarding funding to a satellite provider that promises to deliver 100/20 Mbps.

I can foresee both positive and negative aspects of this approach. Unfortunately, at this point, the NTIA hasn’t defined what extremely high-cost means and the NTIA plans to issue more guidance. I read the NOFO to require each state to define high-cost based on the local situation.

On the positive side, there are many remote locations that are extremely costly to reach with wired technology. Homes on mountaintops or deep in canyons might be unreachable with the technologies listed by the NTIA as capable of providing reliable broadband (fiber, coaxial cable, DSL, and fixed wireless using licensed spectrum). It seems practical not to waste grant money to build technology to reach really remote homes.

But then I start looking at a lot of real-life situations, and I get worried about this provision. By definition, practically any homes in the woods in Appalachia, the Ozarks, or the Sierra Nevadas will cost a lot more to reach than homes in the plains of Iowa or Minnesota. It costs a lot more to get broadband to the many folks who live on islands because of the backhaul. Homes that happen to be near federal parks or other federal lands are often going to cost a lot more to reach because of the added paperwork. Does the NOFO give a State the cover to write such places off or fund to technologies that are not considered to provide reliable service?

I find that a bit ironic since there is a statement in the NOFO goals about wanting to reach everybody with good broadband – the NTIA said states should consider a grant request to serve even a single remote home. Part of me says that the whole intent of Congress is to reach exactly these high-cost places – they are the ones that really need the federal subsidy.

I worry about the ability to substitute technologies in places like heavy mountains and woods. The only reliable broadband in such places is a wired network. I know wireless vendors claim the ability of wireless technology to penetrate trees and woods, but it doesn’t work well where there is nothing but woods along with rough terrain where lines of sight are impossible.

Each state is going to have a public comment period, and counties and communities that have the more challenging costs and terrains need to pay close attention to your state’s proposed plan to make sure the state isn’t going to write you off before the grant process even begins. That challenge process might be the only chance you’ll have to get good broadband.

Get Ready for Higher Interest Rates

The Federal Reserve recently raised its benchmark interest rate by 0.75%, the biggest increase since 1994. The interest rate is still low by historical standards, with the fed rate now at 1.75%. But there is a lot of talk among economists that the fed rate will likely increase to as much as 3.5% this year and possibly 4% next year.

The federal benchmark rate is the rate at which the Federal Reserve loans money to large banks, and the higher interest rates quickly permeate through the economy in the form of higher interest rates for commercial lending, car loans, mortgages, etc.

Refer to the graph below to see why I refer to current rates as still low. The federal reserve rate dropped to near to zero at the beginning of 2009 and has stayed incredibly low since then, other than a blip upward to 2.4% at the beginning of 2019. But the last time the fed rate was this low was in 1958, so the recent low rates have been an historical anomaly. After having enjoyed low interest rates for thirteen years, I think it’s obvious that most of the economy has come to take low rates for granted.

This is a particularly germane issue today because a lot of ISPs are considering borrowing large amounts of matching funds for broadband grants. Higher interest rates mean larger annual debt payments, and that can easily make the difference between a business plan being feasible and not feasible. For a new project to cash flow, the new customer revenues must be large enough to cover operating expenses plus the cost of debt.

Below is a simple table showing the annual debt costs for a $10 million loan – which would represent a 25% grant matching for a $40 million broadband grant project. Down the left are interest rates. Across the top is the loan term, in years. The values in the table are the annual debt payments. This makes it easy to grasp the impact of an interest rate increase. If you were hoping for a 15-year loan for $10 million at 4% and the interest rate increases to 6%, the annual debt payment climbs by $128,000.

Loan Term
Rate 10 15 20 25
3% 1,424,564 940,295 727,087 608,139
4% 1,485,278 1,001,437 789,933 673,091
5% 1,547,218 1,064,558 855,462 741,368
6% 1,610,359 1,129,601 923,565 812,785
7% 1,674,678 1,196,508 994,126 887,139

The chart also suggests the strategy to offset interest rate increases, which is to find longer-term debt. If that same 15-year loan at 4% can instead be financed for twenty years at the higher 6% interest rate, the annual debt payments would decrease by almost $78,000, even with the higher interest rate.

This is not to suggest that finding longer-term loans is easy. Most commercial banks don’t like making loans for longer than 10 or 12 years in length. There are specialty banks like CoBank and RTFC that will give out longer-term loans, but even they are not going to make long-term loans available to everybody. Most banks dislike tying up their equity in long-term loans.

The only group of borrowers that have a relatively easy time getting longer-term loans are municipalities. Federal bond law allows financing for terms up to the economic life of the assets being financed. I’ve routinely seen municipal bonds for fiber networks financed for terms as long as 25 or 30 years.

The bottom-line advice in a time of increasing interest rates is to make sure that you understand the implications for whatever project you’re thinking of funding. In past decades I can remember many times when increasing interest rates put projects on hold since they became impossible to pencil in. As you can see by the long-term fed chart, if you wait long enough, interest rates that go up will eventually come back down.

Unfortunately, grant projects are not going to allow borrowers to wait out a bad cycle of interest rates. You either take the higher-rate loan or you pass on the project. As an aside, the rising interest rates are another reason against asking for irrevocable letters of credit. Banks are not going to guarantee or lock in interests today if the money is going to be needed a year or two from now. An irrevocable letter of credit is worthless if the interest rate rises and the borrower can no longer afford the debt.

Economists have been saying for a number of years that interest rates need to return to the normal cycle. Much of the reason for low interest rates has been meddling b the government to force interest rates lower. But this return to normal rates couldn’t happen at a worse time for purposes of funding BEAD matching. It’s one more factor that is going to make accepting a big grant that much more expensive.

Will Broadband Labels Do Any Good?

The FCC is still considering the use of broadband labels that are supposed to explain broadband to customers. This sounds like a really good idea, but I wonder if it’s really going to be effective?

Some of the items included on the FCC sample label are great. The most important fact is the price. It has become virtually impossible to find broadband prices for many ISPs. Many ISP, including the largest ones, only show special pricing online that applies to new customers. These ISPs show the public the sale prices, but it’s often impossible to know the list prices. It’s often the same if somebody calls an ISP – they’ll be offered different promotional packages, but it’s like pulling teeth to get the truth about the everyday price that kicks in at the end of a promotion.

I’m curious about how the broadband labels will handle bundling. The surveys we’ve done recently show that half or more of homes in many markets are still buying a bundle that might include broadband plus voice, cable TV, security, smart home, or cellular. Big ISPs have never wanted to disclose the cost of individual products inside of a bundle and I can’t wait to see how ISPs handle a bundled broadband product.

There are also hidden fees and other ways to disguise the real price. Disclosing pricing will be a huge breath of fresh air – if ISPs are forced to be totally honest. I can imagine the PR and marketing groups at the bigger ISPs are already agonizing over how to disclose pricing while still keeping it cloudy and mysterious.

More perplexing is the broadband speed issue. The sample label that the FCC circulated for comment would require ISPs to list the typical download speeds, typical upstream speeds, typical latency, and typical packet loss. What does typical mean? Consider a Comcast market where the company sells residential broadband that ranges between grandfathered 50 Mbps and 1.2 Gbps. What is the typical speed in that market? How will any consumer be able to judge what a typical speed means?

I’ve written about broadband speeds a lot, and for many technologies, the speeds vary significantly for a given customer during the day. What’s the typical broadband speed for a home that sees download speeds vary by 50% during a typical day? I don’t always want to come across as skeptical, but I’m betting that the big cable companies will list the marketing speeds of their most popular broadband product and call it typical. Such a number is worthless because it’s what customers are already being told today. I don’t have a proposed solution for the various speed dilemmas, but I fear that whatever is told to customers will be largely uninformative.

What will the typical consumer do when told the typical latency and packet loss? It’s hard to think many homes will understand what those terms mean or what the typical values mean.

ISPs are also supposed to disclose network management processes. Does this mean a cable company must be truthful and tell some neighborhoods that their coaxial cable is too old and needs to be replaced – because that is s specific network practice? Will a cable company tell a customer that their neighborhood node is oversubscribed, which accounts for slowdowns at peak times? I’m guessing the network management processes will be described at the total market level instead of at the neighborhood level – again, making them largely uninformative.

I’m also curious how the FCC will know if customers are being told the truth. Folks who read this blog might tell the FCC if a broadband label is deceptive or wrong – but what is the FCC going to do with such complaints? Broadband issues are often hyper-local, and what happens on my block might be different than somebody living just a few blocks away.

I want to be clear that I am not against the broadband labels. Forcing ISPs to be public with prices is long overdue, as long as they disclose the truth. But I’m skeptical about many other things on the labels, and I fear big ISPs will use the labels as another marketing and propaganda tool instead of disclosing what people really need to know.

BEAD Matching Funds

Most of the published summaries of the BEAD grant rules state that the BEAD program will provide 75% funding, meaning a grant applicant must contribute 25% of the cost of the grant project. The reality is that the matching rules are more complicated than that simple rule. Following is a more detailed dive into the issue of BEAD matching.

Matching funds can come directly from the grant applicant or can be provided by local and state governments using funding from the CARES or the ARPA programs. The BEAD rules don’t allow matching contributions from other federal sources such as the FCC Universal Service Fund, ReConnect grants, or the RDOF subsidy awards. The BEAD rules allow federal broadband loans to be used to supply the matching funds.

While the grant rules allow matching to come from the CARES or ARPA money, there is a big catch. States are required to incentivize matching funds to be directly funded by entities with the financial wherewithal to make such contributions. This means a State might penalize an applicant with a good balance sheet from using state and local matching funds in an application. This is an interesting feature that means that big corporate applicants or other entities with a strong balance sheet probably should be prepared to directly fund all matching and not use other grants as matching. One way to think about this rule is that the NTIA wants to reward applicants that put skin in the game. They don’t want to see entities that come with 75% BEAD grants and 25% local grants. I know that the big ISPs and other strong entities like larger electric cooperatives are seeking to make partnerships to get access to local grant funds – but this rule might mean that is a bad idea.

There is another provision that I think a lot of grant applicants are going to find disturbing. States are required to incentivize matches of more than 25%. This brings an aspect of what feels like the reverse auction into the process, meaning entities willing to contribute higher matching will gain a preference over applicants bringing 25% matching. I label this as disturbing because this could be a way for the well-heeled giant ISPs to snag a lot of grant awards – they can outbid other applicants by bringing more than 25% matching funds. However, unlike a reverse auction, an outbid applicant gets no opportunity to amend their first proposal and make a counter-off. This makes the BEAD application feel like a blind, one-round reverse auction.

At the other extreme, a State has the ability to waive any matching requirements, particularly for small applicants or for areas with extremely high costs. If not done well, this could really gum up getting funding to high-cost areas. Would somebody offering a 5% match automatically beat somebody that is asking for the match waiver?

The BEAD grants also allow for in-kind matches. These are non-cash donations of property, goods, or services that meet federal audit standards. In-kind matches can be complicated and might include things like employee time or volunteer services; equipment; supplies; indirect costs; computer hardware and software; use of facilities; or waiver of fees associated with access to rights of way, pole attachments, conduits, easements, or access to other types of infrastructure. These are worth considering. For example, it would count as a non-cash in-kind match if a local government provided free permitting for a grant project.

These various matching rules add another layer of complication to the grant process. Applicants now have to worry if pursuing local matching funds from ARPA will hurt their chances of winning. Applicants must worry if some big ISP offers more than a 25% match to outbid them to grab a market. A lot of the answers to these questions will depend upon how a given state interprets the NTIA rules – it won’t be surprising to see these requirements handled differently by state. This means that it’s going to be vital to understand the nuances of what your state is proposing because the grant rules are not going to be the same everywhere.

Bringing Broadband to the Arctic

The Arctic region has largely been left out of the broadband arena in the past due to the high cost of building last-mile broadband infrastructure. The primary broadband available in the region has been provided for decades by Iridium Communications, which provided only low-bandwidth connections capable of supporting satellite phones and low-bandwidth monitoring devices. The lack of broadband looks to be changing as multiple satellite companies are targeting the region as a good business opportunity.

Starlink and OneWeb already have polar-orbiting satellites that can serve the region. In fact, the original OneWeb business plan focused on the Arctic as its first priority due to the lack of competition.

Telesat has negotiated to connect to indigenous communities in the Arctic through a partnership with the Canadian government. The government has already provided some grants and last year announced a financing deal that will invest $690 million in preferred equity and $790 million in loans to enable Telesat Lightspeed to complete its low-orbit satellite constellation. The government will also receive warrants that can be exchanged in the future for additional shares of Telesat stock. This adds to the $400 million provided by the government of Quebec. The low-orbit constellation will begin with 298 satellites positioned to deliver speeds up to a gigabit across Canada.

SES plans to serve the Arctic with a fleet of medium-earth-orbit satellites that should start launching by the end of the year. MEO satellites deploy in orbits higher than 1,200 miles but closer than the geostationary satellites at 22,000 miles above the earth. The biggest challenge for these satellites is finding orbits that avoid the high-energy Van Allen radiation belts. The SES business plan is to provide high-bandwidth connections to remote places and in addition to the Arctic, will be pursuing broadband for cruise ships, cellular towers, and government networks.

The Arctic Satellite Broadband Mission (ASBM) is being built by Northop Grumman and is a joint venture between Inmarsat, the British satellite operator, the Norwegian Ministry of Defense, and the U.S. Air Force. These satellites are aimed at providing cellular telephone service and also supporting the military. Two satellites are scheduled to launch by the end of this year and will have highly elliptical orbits that will vary between 5,000 and 27,000 miles above the earth. The orbits can be changed to avoid radiation storms.

The Russian Satellite Communications Company (RSCC) announced plans to launch four satellites in highly elliptical paths within a few years to serve the far north polar regions. I have to wonder if these plans are on hold due to the severe economic sanctions in place against the country.

Satellite broadband is an awesome solution for places where there are likely to be no alternatives. I understand why rural residents of the U.S. are flocking to Starlink since, for many of them, it’s the only workable broadband solution on the horizon. I continue to wonder how satellite broadband will stay competitive in the lower forty-eight after the many grant-funded networks are finally built. But there will always be homes in the U.S. out of reach of landline networks or customers that don’t like the landline ISPs, so it would not be surprising to see the satellite companies with a small but steady customer base south of the Arctic for the long-haul.

But satellite broadband ought to dominate the Arctic for decades to come. It can bring decent bandwidth to remote places that may never be candidates for building landline networks. It will be an interesting change for the area as it goes from barely connected to fully connected.