As I’ve been working with clients on grant applications, I keep running across issues that anybody filing for grant funds should consider when seeking a grant. I recently realized that the short time frame for many state grants is out of synch with the reality of the way that ISPs can add customers to a network.
Grants generally pay only for the capital cost of assets. The largest cost for fiber grants is likely the cost of the fiber running up and down streets to pass customers. The second largest cost in many grants is the fiber drops that connect from the street to customers.
I’m seeing many state grant awards with a 2-year construction deadline starting from the date of a grant award, meaning the grants won’t pay for any assets that are completed after the mandatory ending date. Even for a small grant project of a few million dollars, there is a lot to do in the 2-year time frame. The project must be engineered, and construction material ordered. With today’s supply chain issues, there could be a delay of as long as a year to receive all needed construction materials. The network must then be constructed. Hut sites must be created, with concrete pads poured. And only after the fiber has been built and the electronics activated can an ISP begin activating customers.
A grant application requires an ISP to set a target customer penetration rate. If an ISP sets a target rate of 60%, then the grant includes an award for drops, customer electronics, and installation costs for that many customers – no more. If a grant applicant gets more than the 60% penetration rate, the cost of installing the extra customers comes out of the ISP’s pocket. That may not seem like a big deal, but rural places with long drops can be expensive.
The bigger issue with a 2-year grant is not finishing the installations on time. Experienced ISPs know that it can take 4 or 5 years to fully penetrate a new market. There are always customers ready to be connected when the grant is first announced. These customers take no selling other than announcing a sign-up process.
But other potential customers are not so gung ho. They might wait to see how their neighbors like the service before committing to a new ISP. People in rural areas are often particularly suspicious of claims made by a new ISP because they’ve been burned in the past. They might have been told that a CAF II grant was going to make DSL better – and it didn’t. They might have been given a sales pitch by a wireless ISP promising better broadband and then delivering speeds no better than the DSL. And many have been lured to try satellite broadband and found that it was expensive and wouldn’t do what they needed.
But even the cautious and suspicious potential customers will be won over in time – but the big question with grant funding is if an ISP can get them installed before the ending date of the grant. It’s not going to be an easy thing to do, and I recommend that ISPs start the sales pitch as soon as the grant award is announced. In most rural markets, ISPs know they will eventually get 75% or 80% of the customers, but not within two years of the day they start the engineering.
I’ve seen ISPs that try to avoid this problem by asking for funding to install 100% of drops. That would allow building drops to everybody, including households that will never take service. A smart grant reviewer will disallow this and will not waste valuable grant funding building homes that may never buy broadband.
In summary, an ISP has two concerns with a grant with a short timeframe. Make sure to ask for enough money upfront. If you only ask for enough money to install 50% of customers and then exceed that, then you won’t get extra grant money to cover them. But on the flip side, an ISP must realize that there is often going to be a good chance of not meeting the target penetration rate in a short-term grant. Even if you eventually get 75% households in a grant area, the grant will only reimburse you for customers who were installed before the last day covered by the grant period. For short grants of two years, that means starting the sales process early and diligently to get customers sold and installed before the funding clock runs out.