$20.4 Billion in Broadband Funding?

Chairman Ajit Pai and the White House announced a new rural broadband initiative that will provide $20.4 billion over ten years to expand and upgrade rural broadband. There were only a few details in the announcement, and even some of them sound tentative. A few things are probably solid:

  • The money would be used to provide broadband in the price-cap service areas – these are the areas served by the giant telcos.
  • The FCC is leaning towards a reverse auction.
  • Will support projects that deliver at least 25/3 Mbps broadband.
  • Will be funded from the Universal Service Fund and will ‘repurpose’ existing funds.
  • The announcement alludes to awarding the money later this year, which would be incredibly aggressive.
  • This was announced in conjunction with the auction of millimeter wave spectrum – however this is not funded from the proceeds of that auction.

What might it mean to repurpose this from the Universal Service Fund?  The fund dispersed $8.7 billion in 2018. We know of two major upcoming changes to the USF disbursements. First. the new Mobility II fund to bring rural 4G service adds $453 million per year to the USF. Second. the original CAF II program that pays $1.544 billion annually  to the big telcos ends after 2020.

The FCC recently increased the cap on the USF to $11.4 billion. Everybody was scratching their head over that cap since it is so much higher than current spending. But now the number makes sense. If the FCC was to award $2.04 billion in 2020 for the new broadband spending, the fund would expand almost to that new cap. Then, in 2021 the fund would come back down to $9.6 billion after the end of CAF II. We also know that the Lifeline support subsidies have been shrinking every year and the FCC has been eyeing further cuts in that program. We might well end up with a fund by 2021 that isn’t much larger than the fund in 2018.

There are some obviously big things we don’t know. The biggest is the timing of the awards. Will this be a one-time auction for the whole $20.4 billion or a new $2 billion auction for each of the next ten years? This is a vital question. If there is an auction every year then every rural county will have a decent shot at the funding. That will give counties time to develop business plans and create any needed public private partnership to pursue the funding.

However, if the funding is awarded later this year in one big auction and then disbursed over ten years, then I predict that most of the money will go again to the big telcos – this would be a repeat of the original CAF II. That is my big fear. There was great excitement in rural America for the original CAF II program, but in the end that money was all given to the big telcos. The big telcos could easily promise to improve rural DSL to 25/3 Mbps given this kind of funding. They’d then have ten years to fulfill that promise. I find it worrisome that the announcement said that the funding could benefit around 4 million households – that’s exactly the number of households covered by the big telcos in CAF II.

What will be the study areas? The CAF II program awarded funding by county. Big study areas benefit the big telcos since anybody else chasing the money would have to agree to serve the same large areas. Big study areas means big projects which will make it hard for many ISPs to raise any needed matching finds for the grants – large study areas would make it impossible for many ISPs to bid.

My last concern is how the funds will be administered. For example, the current ReConnect funding is being administered by the RUS which is part of the Department of Agriculture. That funding is being awarded as part grants and part loans. As I’ve written many times, there are numerous entities that are unable to accept RUS loans. There are features of those loans that are difficult for government entities to accept. It’s also hard for a commercial ISP to accept RUS funding if they already carry debt from some other source. The $20.4 billion is going to be a lot less impressive if a big chunk of it is loans. It’s going to be disastrous if loans follow the RUS lending rules.

We obviously need to hear a lot more. This could be a huge shot in the arm to rural broadband if done properly – exactly the kind of boost that we need. It could instead be another huge giveaway to the big telcos – or it could be something in between. I know I tend to be cynical, but I can’t ignore that some of the largest federal broadband funding programs have been a bust. Let’s all hope my worries are unfounded.

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